Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

Yes þ

No o

Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).

Yes þ

No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.

Large accelerated filer

þ

Accelerated filer ¨

Non-accelerated filer

¨(Do not check if a smaller reporting company)

Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).

Yes o

No þ

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.

Wells Fargo net income applicable
to common stock to average
Wells Fargo common
stockholders equity (ROE)

10.40

8.96

13.70

16

(24

)

9.69

14.07

(31

)

Efficiency ratio (1)

59.6

56.5

56.4

5

6

58.0

56.3

3

Total revenue

$

21,394

21,448

22,507



(5

)

42,842

43,524

(2

)

Pre-tax pre-provision profit (PTPP) (2)

8,648

9,331

9,810

(7

)

(12

)

17,979

19,009

(5

)

Dividends declared per common share

0.05

0.05

0.05





0.10

0.39

(74

)

Average common shares outstanding

5,219.7

5,190.4

4,483.1

1

16

5,205.1

4,365.9

19

Diluted average common shares outstanding

5,260.8

5,225.2

4,501.6

1

17

5,243.0

4,375.1

20

Average loans

$

772,460

797,389

833,945

(3

)

(7

)

784,856

844,708

(7

)

Average assets

1,224,180

1,226,120

1,274,926



(4

)

1,225,145

1,282,280

(4

)

Average core deposits (3)

761,767

759,169

765,697



(1

)

760,475

759,845



Average retail core deposits (4)

574,436

573,653

596,648



(4

)

574,059

593,592

(3

)

Net interest margin

4.38

%

4.27

4.30

3

2

4.33

4.23

2

At Period End

Securities available for sale

$

157,927

162,487

206,795

(3

)

(24

)

157,927

206,795

(24

)

Loans

766,265

781,430

821,614

(2

)

(7

)

766,265

821,614

(7

)

Allowance for loan losses

24,584

25,123

23,035

(2

)

7

24,584

23,035

7

Goodwill

24,820

24,819

24,619



1

24,820

24,619

1

Assets

1,225,862

1,223,630

1,284,176



(5

)

1,225,862

1,284,176

(5

)

Core deposits (3)

758,680

756,050

761,122





758,680

761,122



Wells Fargo stockholders equity

119,772

116,142

114,623

3

4

119,772

114,623

4

Total equity

121,398

118,154

121,382

3



121,398

121,382



Tier 1 capital (5)

101,992

98,329

102,721

4

(1

)

101,992

102,721

(1

)

Total capital (5)

141,088

137,600

144,984

3

(3

)

141,088

144,984

(3

)

Capital ratios:

Total equity to assets

9.90

%

9.66

9.45

2

5

9.90

9.45

5

Risk-based
capital (5)

Tier 1 capital

10.51

9.93

9.80

6

7

10.51

9.80

7

Total capital

14.53

13.90

13.84

5

5

14.53

13.84

5

Tier 1 leverage (5)

8.66

8.34

8.32

4

4

8.66

8.32

4

Tier 1 common equity (6)

7.61

7.09

4.49

7

69

7.61

4.49

69

Book value per common share

$

21.35

20.76

17.91

3

19

21.35

17.91

19

Team members (active, full-time equivalent)

267,600

267,400

269,900



(1

)

267,600

269,900

(1

)

Common stock price:

High

$

34.25

31.99

28.45

7

20

34.25

30.47

12

Low

25.52

26.37

13.65

(3

)

87

25.52

7.80

227

Period end

25.60

31.12

24.26

(18

)

6

25.60

24.26

6

(1)

The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income).

(2)

Pre-tax pre-provision profit (PTPP) is total revenue less noninterest expense. Management believes that PTPP is a useful
financial measure because it enables investors and others to assess the Companys ability to generate capital to cover
credit losses through a credit cycle.

This Report on Form 10-Q for the quarter ended June 30, 2010, including the Financial Review and
the Financial Statements and related Notes, contains forward-looking statements, which may include
forecasts of our financial results and condition, expectations for our operations and business, and
our assumptions for those forecasts and expectations. Do not unduly rely on forward-looking
statements. Actual results may differ materially from our forward-looking statements due to several
factors. Some of these factors are described in the Financial Review and in the Financial
Statements and related Notes. For a discussion of other factors, refer to the Forward-Looking
Statements and Risk Factors sections in this Report and to the Risk Factors and Regulation
and Supervision sections of our Annual Report on Form 10-K for the year ended December 31, 2009
(2009 Form 10-K) and the Risk Factors section of our Quarterly Report on Form 10-Q for the period
ended March 31, 2010 (First Quarter Form 10-Q), filed with the Securities and Exchange Commission
(SEC) and available on the SECs website at www.sec.gov.

See the Glossary of Acronyms at the end of this Report for terms used throughout the Financial
Review, and Financial Statements and related Notes of this Report.

FINANCIAL REVIEW

OVERVIEW

Wells Fargo & Company is a nationwide, diversified, community-based financial services company,
with $1.2 trillion in assets, providing banking, insurance, trust and investments, mortgage
banking, investment banking, retail banking, brokerage and consumer finance through banking stores,
the internet and other distribution channels to individuals, businesses and institutions in all 50
states, the District of Columbia (D.C.) and in other countries. We ranked fourth in assets and
third in the market value of our common stock among our peers at June 30, 2010. When we refer to
Wells Fargo, the Company, we, our or us in this Report, we mean Wells Fargo & Company and
Subsidiaries (consolidated). When we refer to the Parent, we mean Wells Fargo & Company. When we
refer to legacy Wells Fargo, we mean Wells Fargo excluding Wachovia Corporation (Wachovia), which
was acquired by Wells Fargo on December 31, 2008.

Our vision is to satisfy all our customers financial needs, help them succeed financially, be
recognized as the premier financial services company in our markets and be one of Americas great
companies. Our primary strategy to achieve this vision is to increase the number of products our
customers buy from us and to provide them all the financial products that will help them fulfill
their needs. Our cross-sell strategy, diversified business model and the breadth of our geographic
reach facilitate growth in both strong and weak economic cycles, as we can grow by expanding the
number of products our current customers have with us, gain new customers in our extended markets,
and increase market share in many businesses. All of our business segments contributed to earnings
in second quarter 2010.

Our company earned $3.1 billion ($0.55 diluted earnings per common share) in second quarter 2010,
compared with $3.2 billion ($0.57 diluted earnings per common share) in second quarter 2009. This
is the fourth time since the Wachovia merger that quarterly net income was greater than $3.0
billion. Net income for the first half of 2010 was $5.6 billion ($1.00 diluted earnings per common
share), compared with $6.2 billion ($1.13 diluted earnings per common share) for the first half of
2009. Despite declining loan demand since early last year and lower mortgage hedging results in
second quarter, total revenue and pre-tax pre-provision profit remained strong at $21.4 billion and
$8.6 billion, respectively. Year-over-year growth in the franchise was driven by our diverse
businesses including commercial real estate (CRE) brokerage, wealth management, asset-based
lending, merchant services, debit card and global remittance.

$506 million of commercial purchased credit-impaired (PCI) loan resolutions, due to success
in selling or settling commercial PCI loans;



$627 million of operating losses, up $468 million from a year ago, predominantly due to
additional litigation accruals;



$498 million of merger integration expenses, up from $380 million in first quarter 2010;
and



$137 million of severance costs for the Well Fargo Financial restructuring.

In the six quarters since our merger with Wachovia, we have earned cumulative profits of $17.9
billion reflecting the breadth of our business model and the power of the consolidation with
Wachovia. Merger integration activities are proceeding on track and the combined company continued
to produce financial results including revenue synergies better than our original expectations. We
currently expect aggregate merger costs of approximately $5.7 billion ($3.0 billion in aggregate
through June 30, 2010). Integration costs were $498 million in second quarter 2010. We currently
project $600 million to $650 million in merger costs per quarter in the third and fourth quarters
of 2010, before these costs decline in 2011. We continue to expect to achieve $5.0 billion in
annual cost savings upon completing the merger integration. We have achieved approximately 80% of
run-rate cost savings by the end of second quarter 2010, and expect to achieve 90% by year-end
2010.

Our cross-sell at legacy Wells Fargo set a record in second quarter 2010 with 6.06 Wells Fargo
products for retail banking households. Our goal is eight products per customer, which is
approximately half of our estimate of potential demand. One of every four of our legacy Wells Fargo
retail banking households has eight or more products and our average middle-market commercial
banking customer has almost eight products. Wachovia retail bank households had an average of 4.88
Wachovia products. We believe there is potentially significant opportunity for growth from an
increase in cross-sell to Wachovia retail bank households. For legacy Wells Fargo, our average
middle-market commercial banking customer had an average of 7.7 products and an average of 6.4
products for Wholesale Banking customers. Business banking cross-sell offers another potential
opportunity for growth, with cross-sell of 3.88 products at legacy Wells Fargo.

We continued taking actions to build capital and further strengthen our balance sheet, including
reducing previously identified non-strategic and liquidating loan portfolios (including the Wells
Fargo Financial liquidating portfolio), which declined by $6.9 billion in second quarter 2010 and
$40.6 billion cumulatively since the Wachovia acquisition. We significantly built capital in second
quarter 2010, driven by strong earnings. Our capital ratios at June 30, 2010, were higher than they
were prior to the Wachovia acquisition. Our capital ratios continued to build rapidly, with Tier 1
common reaching 7.61%, up 52 basis points from first quarter 2010, and Tier 1 capital at 10.51%,
even with the May 20, 2010, purchase of $540 million of Wells Fargo warrants auctioned by the U.S.
Treasury. The Tier 1 leverage ratio increased to 8.66%. See the Capital Management section in
this Report for more information regarding Tier 1 common equity.

As we have stated in the past, successful companies must invest in their core businesses and
maintain strong balance sheets to consistently grow over the long term. In second quarter 2010, we
opened 13 retail banking stores for a retail network total of 6,445 stores. We converted 87
Wachovia banking stores in California in second quarter 2010 and Texas and Kansas store conversions
took place in July 2010.

In July 2010, we announced that we will be restructuring the operations of Wells Fargo Financial
and closing its store network in the U.S. Due to the restructuring of this business, we recorded
$137 million in severance costs in second quarter 2010. The business will largely be realigned into
existing retail,

mortgage banking and commercial business lines. The legacy Wells Fargo Financial
debt consolidation portfolio is now considered to be a liquidating or non-strategic portfolio as we are exiting the
business of originating non-prime portfolio mortgage loans. Wells Fargo Financials other consumer
loans, such as Federal Housing Administration (FHA) home loans, auto loans and credit cards, will
be consolidated with similar products within Community Banking.

Wells Fargo remained one of the largest providers of credit to the U.S. economy in second quarter
2010. We continued to lend to creditworthy customers and, during second quarter 2010, made $150
billion in new loans and commitments to consumer, small business and commercial customers,
including $81 billion of residential mortgage originations. We have been an industry leader in loan
modifications for homeowners, with more than half a million active and completed trial
modifications between January 2009 and June 30, 2010, including 75,577 Home Affordability
Modification Program (HAMP) active trial and completed modifications, and 429,466 proprietary trial
and completed modifications. On March 17, 2010, we announced our participation in the governments
Second-Lien Modification Program under HAMP to help struggling homeowners with a reduction in their
home equity loan payments.

We believe credit quality has turned the corner, with net charge-offs declining to $4.5 billion,
down 16% from first quarter 2010 and down 17% from last years peak quarter. The significant
reduction in credit losses in second quarter 2010 confirmed our prior outlook that credit losses
peaked in fourth quarter 2009 and provision expense peaked in third quarter 2009. Based on
declining losses and across-the-board improved credit quality trends, we released $500 million in
loan loss reserves in second quarter 2010. Absent significant deterioration in the economy, we
currently expect the positive trend in charge-offs will continue over the coming year and expect
future reductions in the allowance for loan losses.

Nonaccrual loan growth in second quarter 2010 decelerated to 2% from first quarter 2010, down
significantly from prior quarters. The growth in second quarter 2010 occurred in the real estate
portfolios (commercial and residential), which consist of secured loans. Nonaccrual loans in all
other loan portfolios were essentially flat or down. New inflows to nonaccrual loans continued to
decline (down 18% linked quarter). For additional information, see Balance Sheet Analysis  Loan
Portfolio and Note 5 (Loans and Allowance for Credit Losses) in this Report.

The improvement in credit quality was also evident in the portfolio of PCI loans, which have
continued to perform in line with or better than original expectations at the time of the Wachovia
merger. In particular, the Pick-a-Pay portfolio continued to have positive performance trends,
resulting in a $1.8 billion transfer from nonaccretable difference to accretable yield in second
quarter 2010. This increase in the accretable yield for the Pick-a-Pay portfolio is expected to be
recognized as a yield adjustment to income over the remaining life of these loans, which is
estimated to have a weighted-average life of eight years. In addition, for commercial PCI loans,
due to increased payoffs and dispositions, we reduced the associated nonaccretable difference by
$506 million (reflected in income in the second quarter).

The continued improvement in credit performance is a result of a slowly improving economy coupled
with actions taken by us over the past several years to improve underwriting standards, mitigate
losses and exit portfolios with unattractive credit metrics. We have seen the positive impact of
these actions in the current quarter and in projected losses for future quarters.

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank
Act) became law. The Dodd-Frank Act reshapes and restructures the supervision and regulation of the
financial services industry. Although the Dodd-Frank Act became generally effective in July, many
of its provisions have extended implementation periods and delayed effective dates and will require
extensive

rulemaking by regulatory authorities. The ultimate impact of the Dodd-Frank Act cannot be
determined. See the Risk Factors section of this Report for additional information regarding the
Dodd-Frank Act.

EARNINGS PERFORMANCE

Revenue was $21.4 billion in second quarter 2010, essentially flat from first quarter 2010, and
down 5% from second quarter 2009. Revenue for the first half of 2010 was $42.8 billion, down 2%
from the same period a year ago. Reflecting the breadth and growth potential of the Companys
business model, many businesses had double-digit revenue growth from second quarter 2009, including
commercial real estate brokerage (deal flow), asset-based lending (loan volume and syndications),
merchant services (processing volume), debit cards (increased account activity) and wealth
management. Mortgage banking revenues in second quarter 2010 were down 34% from the prior year due
to lower origination volumes and a net increase in the mortgage loan repurchase reserve. Net
interest income of $11.4 billion declined only 3% from a year ago despite the 7% decline in average
loans.

Noninterest expense of $12.7 billion in second quarter 2010 was flat from a year ago. Second
quarter 2010 expenses included $498 million of merger integration costs, compared with $244 million
a year ago, and $137 million of severance costs related to the Wells Fargo Financial restructuring.
Operating losses were $627 million in second quarter 2010, up $468 million from the prior year,
predominantly due to additional litigation accruals. Our expenses reflect, in addition to merger
integration and credit resolution expenses, our continued investment for long-term growth, hiring
in regional and commercial banking as we apply the Wells Fargo business model throughout legacy
Wachovia markets, and investing in technology to improve service across the franchise. As of second
quarter 2010, we have already realized approximately 80% of our targeted projected run-rate savings
from the Wachovia merger. The efficiency ratio was 59.6% in second quarter 2010 compared with 56.5%
in first quarter 2010 and 56.4% in second quarter 2009, with the increase largely due to additional
merger expenses, litigation accruals and Wells Fargo Financials restructuring costs.

NET INTEREST INCOME

Net interest income is the interest earned on debt securities, loans (including yield-related loan
fees) and other interest-earning assets minus the interest paid for deposits, short-term borrowings
and long-term debt. The net interest margin is the average yield on earning assets minus the
average interest rate paid for deposits and our other sources of funding. Net interest income and
the net interest margin are presented on a taxable-equivalent basis to consistently reflect income
from taxable and tax-exempt loans and securities based on a 35% federal statutory tax rate.

Net interest income on a taxable-equivalent basis was $11.6 billion in second quarter 2010 and
$11.9 billion in second quarter 2009, reflecting a decline in average loans, including a reduction
in loans in the liquidating portfolios. Continued strong growth in consumer and commercial checking
and savings accounts partially offset the impact on income from the decline in loans. The net
interest margin was 4.38% in second quarter 2010 up from 4.30% a year ago, due to additional PCI
loan resolution income and the benefit of lower deposit and market funding costs. Average earning
assets were $1.1 trillion in second quarter 2010, flat compared with second quarter 2009. Average
loans decreased to $772.5 billion in second quarter 2010 from $833.9 billion a year ago. We
continued to supply significant amounts of credit to consumers and businesses in second quarter
2010, although loan demand remained soft. We continued to reduce high-risk/non-strategic loans
(including Pick-a-Pay mortgage, legacy Wells Fargo Financial debt consolidation, and commercial and
commercial real estate PCI loans), which were down $26.1 billion in second quarter 2010 from a year
ago. Average mortgages held for sale (MHFS) were $32.2 billion in second quarter 2010, down from
$43.2 billion a year ago. Average debt securities available for sale were $157.6 billion in second
quarter 2010, down from $179.0 billion a year ago.

Core deposits are a low-cost source of funding and thus an important contributor to net interest
income and the net interest margin. Core deposits include noninterest-bearing deposits,
interest-bearing checking, savings certificates, certain market rate and other savings, and certain
foreign deposits (Eurodollar sweep balances). Average core deposits declined to $761.8 billion in
second quarter 2010 from $765.7 billion in second quarter 2009, and funded 99% and 92% of average
loans in the same periods, respectively. Average checking and savings deposits, typically the
lowest cost deposits, represented about 88% of our average core deposits, one of the highest
percentages in the industry. Average certificates of deposit (CDs) declined $63 billion from second
quarter 2009, predominantly the result of $57 billion of higher-cost Wachovia CDs maturing, yet
total average core deposits were down only $3.9 billion from a year ago. Of average core deposits,
$672.0 billion represent transaction accounts or low-cost savings accounts from consumer and
commercial customers, which increased 10% from $613.3 billion in second quarter 2009. Total average
retail core deposits, which exclude Wholesale Banking core deposits and retail mortgage escrow
deposits, decreased to $574.4 billion for second quarter 2010 from $596.6 billion a year ago.
Average mortgage escrow deposits were $25.7 billion in second quarter 2010, compared with $32.0
billion a year ago. Average certificates of deposits decreased to $89.8 billion in second quarter
2010 from $152.4 billion a year ago. Total average interest-bearing deposits decreased to $635.4
billion in second quarter 2010 from $638.0 billion a year ago.

The following table presents the individual components of net interest income and the net interest
margin.

Net interest margin and net interest income on
a taxable-equivalent basis (6)

4.38

%

$

11,610

4.30

%

$

11,940

Noninterest-earning assets

Cash and due from banks

$

17,415

19,340

Goodwill

24,820

24,261

Other

112,720

122,584

Total noninterest-earning assets

$

154,955

166,185

Noninterest-bearing funding sources

Deposits

$

176,908

174,529

Other liabilities

43,713

49,570

Total equity

120,856

112,778

Noninterest-bearing funding sources used to
fund earning assets

(186,522

)

(170,692

)

Net noninterest-bearing funding sources

$

154,955

166,185

Total assets

$

1,224,180

1,274,926

(1)

Our average prime rate was 3.25% for the quarters ended June 30, 2010 and 2009, and 3.25% for the first half of 2010 and 2009. The average three-month London Interbank Offered
Rate (LIBOR) was 0.44% and 0.84% for the quarters ended June 30, 2010 and 2009, respectively, and 0.35% and 1.04% for the first half of 2010 and 2009, respectively.

(2)

Interest rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories.

(3)

Yields and rates are based on interest income/expense amounts for the period, annualized based on the accrual basis for the respective accounts. The average balance amounts
include the effects of any unrealized gain or loss marks but those marks carried in other comprehensive income are not included in yield determination of affected earning
assets. Thus yields are based on amortized cost balances computed on a settlement date basis.

(4)

Includes certain preferred securities.

(5)

Nonaccrual loans and related income are included in their respective loan categories.

(6)

Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities. The federal statutory tax rate was 35% for the periods presented.

Noninterest income represented 46% and 47% of total revenues for the second quarter and first half
of 2010, respectively, compared with 48% and 47%, respectively, for the same periods a year ago.
Noninterest income was down 7% year over year, predominantly due to lower mortgage banking hedge
results.

The Federal Reserve Board (FRB) announced regulatory changes to debit card and ATM overdraft
practices in fourth quarter 2009. In third quarter 2009, we also announced policy changes that
should help customers limit overdraft and returned item fees. We currently estimate that the
combination of these changes will reduce our 2010 fee revenue by approximately $225 million (after
tax) in third quarter 2010 and $275 million in fourth quarter
2010. The actual impact in 2010 and future periods could vary due to a variety of factors, including changes in
customer behavior, economic conditions and other potential offsetting
factors.

We earn fees on trust, investment and IRA (Individual Retirement Account) accounts from managing
and administering assets, including mutual funds, corporate trust, personal trust, employee benefit
trust and agency assets. At June 30, 2010, these assets totaled $1.9 trillion, up 12% from $1.7
trillion a year ago, primarily reflecting a 12% increase in the S&P 500 over the same period.
Trust, investment and IRA fees are primarily based on a tiered scale relative to the market value of the assets under management
or administration. These fees increased to $1.0 billion in second quarter 2010 from $839 million a
year ago.

We received commissions and other fees for providing services to full-service and discount
brokerage customers of $1.7 billion in second quarter 2010 and $1.6 billion a year ago. These fees
include transactional commissions, which are based on the number of transactions executed at the
customers direction, and asset-based fees, which are based on the market value of the customers
assets. Client assets totaled $1.1 trillion at June 30, 2010, up from $1.0 trillion a year ago.
Commissions and other fees also include fees from investment banking activities including equity
and bond underwriting.

Card fees were $911 million in second quarter 2010, down from $923 million a year ago. Recent
legislative and regulatory changes limit our ability to increase interest rates and assess certain
fees on card accounts. The anticipated net impact in third quarter 2010 related to these changes is
estimated to be $30 million (after tax). The actual impact in
2010 and future periods could vary due to a variety of factors,
including changes in customer behavior, economic conditions and
other potential offsetting factors.

Mortgage banking noninterest income was $2.0 billion in second quarter 2010, down from $3.0 billion
a year ago. The reduction in mortgage banking noninterest income is primarily driven by the decline
in net gains on mortgage loan origination/sales activities of $1.4 billion to $793 million for
second quarter 2010 from $2.2 billion for second quarter 2009, primarily due to lower origination
volumes and a net increase in the mortgage loan repurchase reserve. Residential real estate
originations were $81 billion in second quarter 2010, down 37% from $129 billion a year ago. The
1-4 family first mortgage unclosed pipeline was $68 billion at June 30, 2010, and $57 billion at
December 31, 2009. For additional information, see the Risk Management  Mortgage Banking
Interest Rate and Market Risk section and Note 1 (Summary of Significant Accounting Policies),
Note 8 (Mortgage Banking Activities) and Note 12 (Fair Values of Assets and Liabilities) to
Financial Statements in this Report.

Net gains on mortgage loan origination/sales activities include the cost of any additions to the
mortgage repurchase reserve as well as adjustments of loans in the warehouse/pipeline for changes
in market conditions that affect their value. Mortgage loans are repurchased based on standard
representations and warranties and early payment default clauses in mortgage sale contracts.
Additions to the mortgage repurchase reserve that were charged against net gains on mortgage loan
origination/sales activities during second quarter 2010 were $382 million and $784 million for the
first half of 2010. For additional information about mortgage loan repurchases, see the Risk
Management  Credit Risk Management Process  Reserve for Mortgage Loan Repurchase Losses
section and Note 7 (Securitizations and Variable Interest Entities) to Financial Statements in this
Report.

The reduction in net gains on mortgage loan origination/sales activities was partially offset by an
increase in net servicing income. Net servicing income increased $402 million from a year ago
primarily due to growth in the servicing portfolio, reduced mortgage servicing rights (MSR)
amortization due to lower payoffs, and lower servicing foreclosure costs due to more loan
modifications and loss mitigation activities in addition to stabilization in the delinquencies in
our servicing portfolio. In addition to servicing fees, net servicing income includes both changes
in the fair value of MSRs during the period as well as changes in the value of derivatives
(economic hedges) used to hedge the MSRs. Net servicing income for second quarter 2010 included a
$626 million net MSRs valuation gain ($2.7 billion decrease in the fair value of the MSRs
offsetting a $3.3 billion hedge gain) and for second quarter 2009 included a $1.0 billion net MSRs
valuation gain ($2.3 billion increase in the fair value of MSRs partially offsetting a $1.3 billion
hedge loss). See the Risk Management  Mortgage Banking Interest Rate and Market Risk section of
this Report for additional information regarding our MSRs risks and hedging approach. At June 30,
2010, the ratio of MSRs to related loans serviced for others was 0.76% compared with 0.91% at December 31, 2009. The average note rate was 5.53%, the lowest since we reentered the servicing
business.

Income from trading activities was a $109 million gain in second quarter 2010, down from a $749
million gain a year ago. This decrease was driven by challenging market conditions and continued
reductions in risk positions in this business, since the merger with Wachovia, while continuing to
support customer-related activities.

Aggregate net gains on debt securities available for sale and equity securities totaled $318
million in second quarter 2010, compared with net losses of $38 million a year ago. The
year-over-year

improvement was due to lower impairment write-downs of $168 million in second
quarter 2010, down from $463 million a year ago. For additional information, see the Balance Sheet
Analysis  Securities Available for Sale section and Note 4 (Securities Available for Sale) to
Financial Statements in this Report.

Operating lease income was $329 million in second quarter 2010, up $161 million from a year ago
primarily due to gains on early lease terminations.

The increase in All other noninterest income to $581 million in second quarter 2010 from $476
million a year ago was due to gains on loan sales.

NONINTEREST EXPENSE

Quarter ended June 30

,

%

Six months ended June 30

,

%

(in millions)

2010

2009

Change

2010

2009

Change

Salaries

$

3,564

3,438

4

%

$

6,878

6,824

1

%

Commission and incentive compensation

2,225

2,060

8

4,217

3,884

9

Employee benefits

1,063

1,227

(13

)

2,385

2,511

(5

)

Equipment

588

575

2

1,266

1,262



Net occupancy

742

783

(5

)

1,538

1,579

(3

)

Core deposit and other intangibles

553

646

(14

)

1,102

1,293

(15

)

FDIC and other deposit assessments

295

981

(70

)

596

1,319

(55

)

Outside professional services

572

451

27

1,056

861

23

Contract services

384

256

50

731

472

55

Foreclosed assets

333

187

78

719

435

65

Outside data processing

276

282

(2

)

548

494

11

Postage, stationery and supplies

230

240

(4

)

472

490

(4

)

Operating losses

627

159

294

835

331

152

Insurance

164

259

(37

)

312

526

(41

)

Telecommunications

156

164

(5

)

299

322

(7

)

Travel and entertainment

196

131

50

367

236

56

Advertising and promotion

156

111

41

268

236

14

Operating leases

27

61

(56

)

64

131

(51

)

All other

595

686

(13

)

1,210

1,309

(8

)

Total

$

12,746

12,697



$

24,863

24,515

1

Noninterest expense was $12.7 billion in second quarter 2010, flat compared with $12.7 billion in
second quarter 2009, and included $498 million and $244 million of merger integration costs for the
same periods, respectively. Noninterest expense in second quarter 2010 also included $137 million
of severance costs related to the Wells Fargo Financial restructuring. Foreclosed assets expense
was $333 million in second quarter 2010, up 78% from a year ago due to a $2.5 billion increase in foreclosed
assets year over year, including $1.6 billion of foreclosed loans in the PCI portfolio that are now
recorded as foreclosed assets. Operating losses were $627 million, up $468 million from a year ago,
predominantly due to additional litigation accruals. The $128 million increase in contract services
from a year ago was merger related. Of our approximately $5.7 billion of estimated total Wachovia
merger integration costs ($3.0 billion in aggregate through June 30, 2010), we expect to incur
approximately $2.1 billion in 2010, of which $878 million was recorded in the first half of 2010,
as we convert banking stores and lines of business, and continue to build infrastructure.

Federal Deposit Insurance Corporation (FDIC) and other deposit assessments were $295 million in
second quarter 2010, down from $981 million a year ago, which included additional assessments
related to the FDIC Transaction Account Guarantee Program and the FDIC special assessment of $565
million. The $95 million decline in insurance expense from second quarter 2009 was predominantly
due to lower insurance reserves at our captive mortgage reinsurance operation for second quarter
2009.

In addition to merger integration, we continued to invest for long-term growth throughout the
Company, hiring in regional banking and commercial banking as we apply Wells Fargos model to the
eastern markets, and investing in technology to improve service across our franchise. We converted
87 Wachovia

banking
stores in California in second quarter 2010 and opened 13 banking stores in the
quarter for a retail network total of 6,445 stores.

INCOME TAX EXPENSE

Our effective income tax rate was 33.1% in second quarter 2010, up from 31.8% in second quarter
2009, and was 34.2% for the first half of 2010, up from 32.8% for the first half of 2009. The
increase for the first half of 2010 was partly due to additional tax expense in 2010 related to the
new health care legislation and fewer favorable settlements with tax authorities.

OPERATING SEGMENT RESULTS

We have three lines of business for management reporting: Community Banking; Wholesale Banking; and
Wealth, Brokerage and Retirement. We define our operating segments by product and customer. Our
management accounting process measures the performance of the operating segments based on our
management structure and is not necessarily comparable with similar information for other financial
services companies.

The table below and the following discussion present our results by operating segment. For a more
complete description of our operating segments, including additional financial information and the
underlying management accounting process, see Note 16 (Operating Segments) to Financial Statements
in this Report.

OPERATING SEGMENT RESULTS  HIGHLIGHTS

Wealth, Brokerage

Community Banking

Wholesale Banking

and Retirement

(in billions)

2010

2009

2010

2009

2010

2009

Quarter ended June 30,

Revenue

$

13.7

15.2

5.7

5.2

2.9

2.8

Net income

1.8

2.1

1.4

1.1

0.3

0.3

Average loans

539.1

565.8

223.4

258.4

42.6

46.0

Average core deposits

533.4

565.6

161.5

137.4

121.5

113.5

Six months ended June 30,

Revenue

$

27.8

29.6

11.0

10.1

5.8

5.3

Net income

3.2

4.0

2.6

2.2

0.6

0.4

Average loans

547.1

566.8

227.8

268.3

43.2

46.3

Average core deposits

532.8

560.3

161.2

138.5

121.3

108.2

Community Banking offers a complete line of diversified financial products and services for
consumers and small businesses including investment, insurance and trust services in 39 states and
D.C., and mortgage and home equity loans in all 50 states and D.C.

Community Bankings net income decreased 14% to $1.8 billion in second quarter 2010 from $2.1
billion a year ago. Revenue decreased to $13.7 billion and $27.8 billion in the second quarter and
first half of 2010, respectively, from $15.2 billion and $29.6 billion for the same periods a year
ago. Net interest income decreased $840 million, or 9%, in second quarter 2010 from a year ago
driven by the planned reduction in certain liquidating loan portfolios. Average loans decreased
$26.7 billion, or 5%, in second quarter 2010 from a year ago, due to the run-off of liquidating
loan portfolios and low demand. Average core deposits decreased $32.2 billion in second quarter
2010 from a year ago, primarily due to

$57 billion of higher cost Wachovia CDs maturing, partially
offset by $31 billion of largely lower-cost CDs retained, and growth
in customer deposits. Noninterest income decreased $671
million, or 11%, driven primarily by lower mortgage banking income. The provision for loan losses
decreased $946 million, or 22%, due to lower net charge-offs and a $389 million credit reserve
release in second quarter 2010 compared with a $479 million credit reserve build a year ago.
Noninterest expense decreased $211 million, or 3%, due to the FDIC special assessment in second
quarter 2009 and Wachovia merger-related cost savings.

Wholesale Bankings net income of $1.4 billion in second quarter 2010 was up 32% from second
quarter 2009. Net income increased to $2.6 billion for the first half of 2010 from $2.2 billion a
year ago. Wholesale banking results for second quarter 2010 included $495 million in commercial PCI
loan resolutions, substantially all of which was recognized in net interest income, due to success
in selling or settling commercial PCI loans. Net interest income of $3.0 billion in second quarter
2010 increased 21% from $2.5 billion a year ago, due to the commercial PCI loan resolutions, offset
by lower average loans. Average loans of $223.4 billion declined 14% from second quarter 2009
driven by declines across most lending areas. Average core deposits of $161.5 billion in second
quarter 2010 increased 18% from $137.4 billion a year ago driven by growth in both interest-bearing
and non-interest bearing deposits primarily in global financial institutions, government and
institutional banking and commercial banking. The provision for credit losses declined $112 million
from second quarter 2009. The decrease included a $111 million reserve release in the second
quarter 2010 compared with a $162 million credit reserve build a year ago. Noninterest income of
$2.7 billion in second quarter 2010 decreased 4% from $2.8 billion a year ago. The decline was
driven primarily by lower capital markets related trading results as well as lower investment
banking revenues. Noninterest expense of $2.8 billion in second quarter 2010 increased 1% from a
year ago as higher legal and foreclosed asset expenses were partially offset by lower personnel
expense and FDIC assessments.

Wealth, Brokerage and Retirement provides a full range of financial advisory services to clients
using a planning approach to meet each clients needs. Wealth Management provides affluent and high
net worth clients with a complete range of wealth management solutions including financial planning,
private banking, credit, investment management and trust. Family Wealth meets the unique needs of
the ultra high net worth customers. Retail brokerages financial advisors serve customers
advisory, brokerage and financial needs as part of one of the largest full-service brokerage firms
in the U.S. Retirement is a national leader in providing institutional retirement and trust
services (including 401(k) and pension plan record keeping) for businesses, retail retirement
solutions for individuals, and reinsurance services for the life insurance industry.

Wealth, Brokerage and Retirements net income increased 5% to $270 million in second quarter 2010
from $258 million a year ago. Net income increased to $552 million in the first half of 2010, up
from $434 million a year ago. Revenue increased to $2.9 billion and $5.8 billion in the second
quarter and first half of 2010, respectively, from $2.8 billion and $5.3 billion a year ago. Net
interest income increased 7% to $684 million from $637 million a year ago, predominantly due to
higher corporate investment allocation. Average loans decreased 7% to $42.6 billion in second
quarter 2010 from $46.0 billion a year ago. The provision for credit losses decreased $30 million
to $81 million in second quarter 2010 from $111 million a year ago, primarily due to second quarter
2009 reserve build. Noninterest expense

increased $50 million, 2%, to $2.4 billion in second
quarter 2010 from $2.3 billion a year ago predominantly due to higher broker commissions on
increased production.

BALANCE SHEET ANALYSIS

During second quarter 2010, our total assets, loans and core deposits each decreased slightly from
December 31, 2009, but the strength of our business model continued to produce high rates of
internal capital generation as reflected in our improved capital ratios. As a percentage of total
risk-weighted assets, Tier 1 capital increased to 10.5%, total capital to 14.5%, Tier 1 leverage to
8.7% and Tier 1 common equity to 7.6% at June 30, 2010, up from 9.3%, 13.3%, 7.9% and 6.5%,
respectively, at December 31, 2009. The Company purchased $540 million of warrants from the U.S.
Treasury during second quarter 2010, which reduced the Tier 1 common ratio by approximately 5 basis
points. The loan portfolio is now predominantly funded with core deposits and we have significant
capacity to add higher yielding long-term mortgage-backed securities (MBS) for future revenue and
earnings growth.

The following sections provide additional information about the major components of our balance
sheet. Capital is discussed in the Capital Management section of this Report.

SECURITIES AVAILABLE FOR SALE

June 30, 2010

December 31, 2009

Net

Net

unrealized

Fair

unrealized

Fair

(in billions)

Cost

gain

value

Cost

gain

value

Debt securities available for sale

$

144.8

8.0

152.8

162.3

4.8

167.1

Marketable equity securities

4.5

0.6

5.1

4.8

0.8

5.6

Total securities available for sale

$

149.3

8.6

157.9

167.1

5.6

172.7

Securities available for sale consist of both debt and marketable equity securities. We hold debt
securities available for sale primarily for liquidity, interest rate risk management and long-term
yield enhancement. Accordingly, this portfolio consists primarily of very liquid, high-quality
federal agency debt and privately issued MBS. The total net unrealized gains on securities
available for sale of $8.6 billion at June 30, 2010, were up from $5.6 billion at December 31,
2009, due to a general decline in long-term yields and narrowing of credit spreads.

Comparative detail of average balances of securities available for sale is provided in the table
under Earnings Performance  Net Interest Income earlier in this Report.

We analyze securities for other-than-temporary impairment (OTTI) on a quarterly basis, or more
often if a potential loss-triggering event occurs. The initial indication of OTTI for both debt and
equity securities is a decline in the market value below the amount recorded for an investment, and
the severity and duration of the decline. In determining whether an impairment is other than
temporary, we consider the length of time and the extent to which the market value has been below
cost, recent events specific to the issuer, including investment downgrades by rating agencies and
economic conditions within its industry, and whether it is more likely than not that we will be
required to sell the security before a recovery in value.

At June 30, 2010, we had approximately $6 billion of investments in securities, primarily municipal
bonds, which are guaranteed against loss by bond insurers. These
securities are predominantly investment grade and were generally underwritten in accordance with our own investment standards
prior to the determination to purchase, without relying on the bond insurers guarantee in making
the investment

decision. These securities will continue to be monitored as part of our on-going
impairment analysis of our securities available for sale, but are expected to perform, even if the rating
agencies reduce the credit rating of the bond insurers.

The weighted-average expected maturity of debt securities available for sale was 5.0 years at June
30, 2010. Since 69% of this portfolio is MBS, the expected remaining maturity may differ from
contractual maturity because borrowers generally have the right to prepay obligations before the
underlying mortgages mature. The estimated effect of a 200 basis point increase or decrease in
interest rates on the fair value and the expected remaining maturity of the MBS available for sale
are shown in the following table.

MORTGAGE-BACKED SECURITIES  INTEREST RATE SENSITIVITY ANALYSIS

Expected

remaining

Fair

Net unrealized

maturity

(in billions)

value

gains (losses)

(in years)

At June 30, 2010

$

105.1

6.2

3.7

At June 30, 2010, assuming a 200 basis
point:

Increase in interest rates

97.3

(1.6

)

5.6

Decrease in interest rates

109.3

10.4

2.9

See Note 4 (Securities Available for Sale) to Financial Statements in this Report for securities
available for sale by security type.

LOAN PORTFOLIO

June 30, 2010

December 31, 2009

All

All

PCI

other

PCI

other

(in millions)

loans

loans

Total

loans

loans

Total

Commercial and commercial real estate:

Commercial

$

1,113

144,971

146,084

1,911

156,441

158,352

Real estate mortgage

3,487

96,139

99,626

4,137

93,390

97,527

Real estate construction

4,194

26,685

30,879

5,207

31,771

36,978

Lease financing



13,492

13,492



14,210

14,210

Total commercial and commercial
real estate

8,794

281,287

290,081

11,255

295,812

307,067

Consumer:

Real estate 1-4 family first mortgage

35,972

197,840

233,812

38,386

191,150

229,536

Real estate 1-4 family junior lien mortgage

290

101,037

101,327

331

103,377

103,708

Credit card



22,086

22,086



24,003

24,003

Other revolving credit and installment



88,485

88,485



89,058

89,058

Total consumer

36,262

409,448

445,710

38,717

407,588

446,305

Foreign

1,457

29,017

30,474

1,733

27,665

29,398

Total loans

$

46,513

719,752

766,265

51,705

731,065

782,770

A discussion of average loan balances and a comparative detail of average loan balances is included
in Earnings Performance  Net Interest Income earlier in this Report; period-end balances and
other loan related information are in Note 5 (Loans and Allowance for Credit Losses) to Financial Statements
in this Report.

As of December 31, 2008, certain of the loans acquired from Wachovia had evidence of credit
deterioration since their origination, and it was probable that we would not collect all
contractually required principal and interest payments. Such loans identified at the time of the
acquisition were accounted for using the measurement provisions for PCI loans. PCI loans were
recorded at fair value at the date of acquisition, and any related allowance for loan losses was
not permitted to be carried over.

PCI loans were written down to an amount estimated to be collectible. Accordingly, such loans are
not classified as nonaccrual, even though they may be contractually past due, because we expect to
fully collect the new carrying values of such loans (that is, the new cost basis arising out of our
purchase accounting).

A nonaccretable difference was established in purchase accounting for PCI loans to absorb losses
expected at that time on those loans. Amounts absorbed by the nonaccretable difference do not
affect the income statement or the allowance for credit losses.
Substantially all of our commercial,
CRE and foreign PCI loans are accounted for as individual loans. Conversely, Pick-a-Pay and other
consumer PCI loans have been aggregated into several pools based on common risk characteristics.
Each pool is accounted for as a single asset with a single composite interest rate and an aggregate
expectation of cash flows. Resolutions of loans may include sales of loans to third parties,
receipt of payments in settlement with the borrower, or foreclosure of the collateral. Our policy
is to remove an individual loan from a pool based on comparing the amount received from its
resolution with its contractual amount. Any difference between these amounts is absorbed by the
nonaccretable difference. This removal method assumes that the amount received from resolution
approximates pool performance expectations. The remaining accretable yield balance is unaffected
and any material change in remaining effective yield caused by this removal method is addressed by
our quarterly cash flow evaluation process for each pool. For loans in pools that are resolved by
payment in full, there is no release of the nonaccretable difference since there is no difference
between the amount received at resolution and the contractual amount of the loan. In second quarter
2010, we recognized in income $506 million of nonaccretable difference related to commercial PCI
loans due to payoffs and dispositions of these loans, compared with $182 million in first quarter
2010. We also transferred $1.9 billion from the nonaccretable difference to the accretable yield,
of which $1.8 billion was due to sustained positive performance in the Pick-a-Pay portfolio. The
increase in the accretable yield for the Pick-a-Pay portfolio had no impact on second quarter 2010
net income and is expected to be recognized as a yield adjustment to income over the remaining life
of the loans, which is estimated to have a weighted-average life of eight years.

Release of the nonaccretable difference for settlement with borrower, on individually accounted PCI loans, increases interest income
in the period of settlement. Pick-a-Pay and Other consumer PCI loans do not reflect nonaccretable difference releases due to pool
accounting for those loans, which assumes that the amount received approximates the pool performance expectations.

(2)

Release of the nonaccretable difference as a result of sales to third parties increases noninterest income in the period of the sale.

(3)

Reclassification of nonaccretable difference for increased cash flow estimates to the accretable yield will result in increasing
income and thus the rate of return realized. Amounts reclassified to accretable yield are expected to be probable of realization
over the estimated remaining life of the loan.

(4)

Write-downs to net realizable value of PCI loans are charged to the nonaccretable difference when severe delinquency (normally 180
days) or other indications of severe borrower financial stress exist that indicate there will be a loss of contractually due amounts
upon final resolution of the loan.

Since the Wachovia acquisition, we have released $4.2 billion in nonaccretable difference,
including $3.0 billion transferred from the nonaccretable difference to the accretable yield and
$1.2 billion released through loan resolutions. We provided $1.2 billion in the allowance for
credit losses in excess of the initial expected levels on certain PCI loans; the net result is a
$3.0 billion improvement in our initial projected losses on PCI loans. At June 30, 2010, the
allowance for credit losses in excess of initial expected levels on certain PCI loans was $225
million. The following table analyzes the actual and projected loss results on PCI loans since the
acquisition of Wachovia on December 31, 2008, through June 30, 2010.

Total releases of nonaccretable difference due to better
than expected losses

1,411

2,383

431

4,225

Provision for worse than originally expected losses (4)

(1,226

)



(29

)

(1,255

)

Actual and projected losses on PCI loans
better (worse) than originally expected

$

185

2,383

402

2,970

(1)

Release of the nonaccretable difference for settlement with borrower, on individually accounted PCI loans, increases interest income
in the period of settlement. Pick-a-Pay and Other consumer PCI loans do not reflect nonaccretable difference releases due to pool
accounting for those loans, which assumes that the amount received approximates the pool performance expectations.

(2)

Release of the nonaccretable difference as a result of sales to third parties increases noninterest income in the period of the sale.

(3)

Reclassification of nonaccretable difference for increased cash flow estimates to the accretable yield will result in increasing
income and thus the rate of return realized. Amounts reclassified to accretable yield are expected to be probable of realization
over the estimated remaining life of the loan.

(4)

Provision for additional losses recorded as a charge to income, when it is estimated that the expected cash flows for a PCI loan or
pool of loans have decreased subsequent to the acquisition.

For further information on PCI loans, see Note 1 (Summary of Significant Accounting Policies 
Loans) to Financial Statements in the 2009 Form 10-K and Note 5 (Loans and Allowance for Credit
Losses) to Financial Statements in this Report.

DEPOSITS

Deposits totaled $815.6 billion at June 30, 2010, compared with $824.0 billion at December 31,
2009. Comparative detail of average deposit balances is provided in the table under Earnings
Performance  Net Interest Income earlier in this Report. Total core deposits were $758.7 billion
at June 30, 2010, down from $780.7 billion at December 31, 2009.

In the ordinary course of business, we engage in financial transactions that are not recorded in
the balance sheet, or may be recorded in the balance sheet in amounts that are different from the
full contract or notional amount of the transaction. These transactions are designed to (1) meet
the financial needs of customers, (2) manage our credit, market or liquidity risks, (3) diversify
our funding sources, and/or (4) optimize capital.

OFF-BALANCE SHEET TRANSACTIONS WITH UNCONSOLIDATED ENTITIES

In the normal course of business, we enter into various types of on- and off-balance sheet
transactions with special purpose entities (SPEs), which are corporations, trusts or partnerships
that are established for a limited purpose. Historically, the majority of SPEs were formed in
connection with securitization transactions. For more information on securitizations, including
sales proceeds and cash flows from securitizations, see Note 7 (Securitizations and Variable
Interest Entities) to Financial Statements in this Report.

NEWLY CONSOLIDATED VIE ASSETS AND LIABILITIES

Effective January 1, 2010, we adopted new consolidation accounting guidance and, accordingly,
consolidated certain VIEs that were not included in our consolidated financial statements at
December 31, 2009. On January 1, 2010, we recorded the assets and liabilities of the newly
consolidated variable interest entities (VIEs) and derecognized our existing interests in those
VIEs. We also recorded a $183 million increase to beginning retained earnings as a cumulative
effect adjustment and recorded a $173 million increase to other comprehensive income (OCI).

The following table presents the net incremental assets recorded on our balance sheet by structure
type upon adoption of new consolidation accounting guidance.

Incremental

assets as of

(in millions)

Jan. 1, 2010

Structure type:

Residential mortgage loans  nonconforming (1)

$

11,479

Commercial paper conduit

5,088

Other

2,002

Total

$

18,569

(1)

Represents certain of our residential mortgage loans that are not guaranteed by GSEs (nonconforming).

In accordance with the transition provisions of the new consolidation accounting guidance, we
initially recorded newly consolidated VIE assets and liabilities at a basis consistent with our
accounting for respective assets at their amortized cost basis, except for those VIEs for which the
fair value option was elected. The carrying amount for loans approximate the outstanding unpaid
principal balance, adjusted for allowance for loan losses. Short-term borrowings and long-term debt
approximate the outstanding par amount due to creditors.

Upon adoption of new consolidation accounting guidance on January 1, 2010, we elected fair value
option accounting for certain nonconforming residential mortgage loan securitization VIEs. This
election requires us to recognize the VIEs eligible assets and liabilities on the balance sheet at
fair value with
changes in fair value recognized in earnings. Such eligible assets and liabilities consisted
primarily of loans and long-term debt, respectively. The fair value option was elected for those
newly consolidated

VIEs for which our interests, prior to January 1, 2010, were predominantly
carried at fair value with changes in fair value recorded to earnings. Accordingly, the fair value
option was elected to effectively continue fair value accounting through earnings for those
interests. Conversely, fair value option was not elected for those newly consolidated VIEs that did
not share these characteristics. At January 1, 2010, the fair value of loans and long-term debt for
which the fair value option was elected was $1.0 billion and $1.0 billion, respectively. The
incremental impact of electing fair value option (compared to not electing) on the cumulative
effect adjustment to retained earnings was an increase of $15 million.

RISK MANAGEMENT

All financial institutions must manage and control a variety of business risks that can
significantly affect their financial performance. Key among these are credit, asset/liability and
market risk.

For further discussion about how we manage these risks, see pages 5471 of our 2009 Form 10-K. The
discussion that follows is intended to provide an update on these risks.

In connection with first quarter 2010 results, we said we believed quarterly credit losses peaked
in fourth quarter 2009 and provision expense peaked in third quarter 2009. The significant
reduction in credit losses in second quarter 2010 confirmed our prior outlook and we have seen
credit quality improve earlier and to a greater extent than we had previously expected. The
continued improvement in credit performance is a result of a slowly improving economy coupled with
actions taken by the Company over the past several years to improve underwriting standards,
mitigate losses and exit portfolios with unattractive credit metrics.



Quarterly credit losses declined 16% to $4.5 billion in second quarter 2010 from $5.3
billion in first quarter 2010. This improvement in losses was broad based across the consumer
portfolios, with reduced losses in the home equity, Wells Fargo Financial, Pick-a-Pay,
consumer lines and loans, auto dealer services and credit card portfolios.



Losses in the commercial portfolio continued to improve from the higher levels experienced
last year, including a 10% linked-quarter reduction in commercial real estate losses.



We also saw improvement in early indicators of credit quality, with improved 30 day
delinquencies in many portfolios, including Business Direct, credit card, home equity, student
lending and Wells Fargo Home Mortgage.



Based on declining losses and improved credit quality trends, the provision for credit
losses of $4.0 billion was $500 million less than net charge-offs in second quarter 2010.
Absent significant deterioration in the economy, we currently expect future reductions in the
allowance for loan losses.

Measuring and monitoring our credit risk is an ongoing process that tracks delinquencies,
collateral values, economic trends by geographic areas, loan-level risk grading for certain
portfolios (typically commercial) and other indications of risk to loss. Our credit risk monitoring
process is designed to enable early identification of developing risk to loss and to support our
determination of an adequate allowance for loan losses. During the current economic cycle our
monitoring and resolution efforts have focused on loan portfolios exhibiting the highest levels of
risk including mortgage loans supported by real estate (both consumer and commercial), junior lien,
commercial, credit card and subprime portfolios. The following sections include additional
information regarding each of these loan portfolios and their relevant concentrations and credit
quality performance metrics.

The following table identifies our non-strategic and liquidating loan portfolios as of June 30,
2010, and December 31, 2009.

NON-STRATEGIC AND LIQUIDATING LOAN PORTFOLIOS

Outstanding balances

June 30

,

Dec. 31

,

(in billions)

2010

2009

Commercial and commercial real estate PCI loans (1)

$

8.8

11.3

Pick-a-Pay mortgage (1)

80.2

85.2

Liquidating home equity

7.6

8.4

Legacy Wells Fargo Financial indirect auto

8.3

11.3

Legacy Wells Fargo Financial debt consolidation (2)

20.4

22.4

Total non-strategic and liquidating loan portfolios

$

125.3

138.6

(1)

Net of purchase accounting adjustments related to PCI loans.

(2)

In July 2010, we announced the restructuring of our Wells Fargo Financial division and exiting the origination of non-prime portfolio mortgage loans.

The CRE portfolio consists of both CRE mortgages and CRE construction loans. The combined CRE loans
outstanding totaled $130.5 billion at June 30, 2010, or 17% of total loans. CRE construction loans
totaled $30.9 billion at June 30, 2010, or 4% of total loans. Permanent CRE loans totaled $99.6
billion at June 30, 2010, or 13% of total loans. The portfolio is diversified both geographically
and by property type. The largest geographic concentrations are found in California and Florida,
which represented 22% and 11% of the total CRE portfolio, respectively. By property type, the
largest concentrations are office buildings at 23% and industrial/warehouse at 12% of the
portfolio.

The underwriting of CRE loans primarily focuses on cash flows and creditworthiness, and not solely
collateral valuations. To identify and manage newly emerging problem CRE loans, we employ a high
level of surveillance and regular customer interaction to understand and manage the risks
associated with these assets, including regular loan reviews and appraisal updates. As issues are
identified, management is engaged and dedicated workout groups are in place to manage problem
assets. At June 30, 2010, the remaining balance of PCI CRE loans totaled $7.7 billion, down from a
balance of $19.3 billion at December 31, 2008, reflecting the reduction resulting from loan
resolutions and write-downs.

The following table summarizes CRE loans by state and property type with the related nonaccrual
totals. At June 30, 2010, the highest concentration of non-PCI CRE loans by state was $27.3 billion
in California, more than double the next largest state concentration, and the related nonaccrual
loans totaled about $1.7 billion, or 6.2% of CRE loans in California. Office buildings, at $27.9
billion of non-PCI loans, were the largest property type concentration, almost double the next
largest, and the related nonaccrual loans totaled $1.5 billion, or 5.3% of CRE loans for office
buildings. Of CRE mortgage loans (excluding CRE construction loans), 42% related to owner-occupied
properties at June 30, 2010. Nonaccrual loans totaled 6.6% of the non-PCI outstanding balance at
June 30, 2010.

For purposes of portfolio risk management, we aggregate commercial loans and lease financing
according to market segmentation and standard industry codes. The following table summarizes
commercial loans and lease financing by industry with the related nonaccrual totals. This portfolio
has experienced less credit deterioration than our CRE portfolio as evidenced by its lower
nonaccrual rate of 2.5% compared with 6.2% for the CRE portfolios. We believe this portfolio is
well underwritten and is diverse in its risk with relatively similar concentrations across several
industries. A majority of our commercial loans and lease financing portfolio is secured by
short-term assets, such as accounts receivable, inventory and securities, as well as long-lived
assets, such as equipment and other business assets. Our credit risk management process for this
portfolio primarily focuses on a customers ability to repay the loan through their cash flow.
Generally, collateral securing this portfolio represents a secondary source of repayment.

COMMERCIAL LOANS AND LEASE FINANCING BY INDUSTRY

June 30, 2010

December 31, 2009

% of

% of

Nonaccrual

Outstanding

total

Nonaccrual

Outstanding

total

(in millions)

loans

balance (1)

loans

loans

balance (1)

loans

PCI loans:

Media

$



159

*

%

$



314

*

%

Real estate investment trust



92

*



351

*

Insurance



108

*



118

*

Investors



113

*



140

*

Airlines



73

*



87

*

Technology



69

*



72

*

Other



499

(2)

*



829

(2)

*

Total PCI loans



1,113

*



1,911

*

All other loans:

Financial institutions

141

11,529

2

496

11,111

1

Cyclical retailers

82

8,374

1

71

8,188

1

Healthcare

112

8,125

1

88

8,397

1

Food and beverage

78

7,859

1

77

8,316

1

Oil and gas

219

7,863

1

202

8,464

1

Industrial equipment

96

6,503

*

119

7,524

*

Business services

138

5,341

*

99

6,722

*

Transportation

61

6,177

*

31

6,469

*

Utilities

10

5,216

*

15

5,752

*

Real estate other

141

5,767

*

167

6,570

*

Technology

42

5,486

*

72

5,489

*

Hotel/restaurant

224

4,693

*

195

5,050

*

Other

2,662

75,530

(3)

10

2,936

82,599

(3)

11

Total all other loans

4,006

158,463

21

4,568

170,651

22

Total

$

4,006

159,576

21

%

$

4,568

172,562

22

%

*

Less than 1%

(1)

For PCI loans amounts represent carrying value.

(2)

No other single category had loans in excess of $66 million at June 30, 2010, or $110 million (leisure) at December 31, 2009.

(3)

No other single category had loans in excess of $4.7 billion at June 30, 2010, or $5.8 billion (public administration) at
December 31, 2009. The next largest categories included public administration, investors, media, non-residential
construction and leisure.

During the recent credit cycle, we have experienced an increase in requests for extensions
of construction and commercial loans which have repayment guarantees. All extensions are granted
based on a re-underwriting of the loan and our assessment of the borrowers ability to perform
under the agreed-upon terms. At the time of extension, borrowers are generally performing in
accordance with the contractual loan terms. Extension terms generally range from six to thirty-six
months and may require that the borrower provide additional economic support in the form of partial
repayment, amortization or additional collateral or guarantees. In cases where the value of
collateral or financial condition of the

borrower is insufficient to repay our loan, we may rely
upon the support of an outside repayment guarantee in providing the extensions. In considering the
impairment status of the loan, we evaluate the collateral and future cash flows as well as the
anticipated support of any repayment guarantor. When performance under a loan is not reasonably
assured, including the performance of the guarantor, we charge-off all or a portion of a loan based
on the fair value of the collateral securing the loan.

Our ability to seek performance under the guarantee is directly related to the guarantors
creditworthiness, capacity and willingness to perform. We evaluate a guarantors capacity and
willingness to perform on an annual basis, or more frequently as warranted. Our evaluation is based
on the most current financial information available and is focused on various key financial
metrics, including net worth, leverage, and current and future liquidity. We consider the
guarantors reputation, creditworthiness, and willingness to work with us based on our analysis as
well as other lenders experience with the guarantor. Our assessment of the guarantors credit
strength is reflected in our loan risk ratings for such loans. The loan risk rating is an important
factor in our allowance methodology for commercial and commercial real estate loans.

Pick-a-Pay Portfolio

As part of the Wachovia acquisition, we acquired residential first mortgage and home equity loans
that are very similar to the Wells Fargo core originated portfolio. We also acquired the Pick-a-Pay
portfolio, which describes one of the consumer mortgage portfolios. Under purchase accounting for
the Wachovia acquisition, we made purchase accounting adjustments to the Pick-a-Pay loans
considered to be impaired under accounting guidance for PCI loans.

Our Pick-a-Pay portfolio had an unpaid principal balance of $97.1 billion and a carrying value of
$80.2 billion at June 30, 2010. The Pick-a-Pay portfolio is a liquidating portfolio, as Wachovia
ceased originating new Pick-a-Pay loans in 2008. Equity lines of credit and closed-end second liens
associated with Pick-a-Pay loans are reported in the Home Equity core portfolio. The Pick-a-Pay
portfolio includes loans that offer payment options (Pick-a-Pay option payment loans), loans that
were originated without the option payment feature, loans that no longer offer the option feature
as a result of our modification efforts since the acquisition, and loans where the customer
voluntarily converted to a fixed-rate product. The following table provides balances over time
related to the types of loans included in the portfolio.

June 30, 2010

December 31, 2009

December 31, 2008

(in millions)

Outstandings

% of total

Outstandings

% of total

Outstandings

% of total

Option payment loans

$

63,974

66

%

$

73,060

70

%

$

101,297

86

%

Non-option payment ARMs
and fixed-rate loans

13,286

14

14,178

14

15,978

14

Loan modifications  Pick-a-Pay

19,851

20

16,420

16





Total unpaid principal balance

$

97,111

100

%

$

103,658

100

%

$

117,275

100

%

Total carrying value

$

80,208

$

85,238

$

95,315

PCI loans in the Pick-a-Pay portfolio had an unpaid principal balance of $51.0 billion and a
carrying value of $34.9 billion at June 30, 2010. The carrying value of the PCI loans is net of
purchase accounting write-downs to reflect their fair value at acquisition. Upon acquisition, we
recorded a $22.4 billion write-down in purchase accounting on Pick-a-Pay loans that were impaired.
Due to the sustained positive performance observed on the Pick-a-Pay portfolio compared to the
original acquisition estimates, we reclassified $1.8 billion from the nonaccretable difference to
the accretable yield in second quarter 2010 for a total of $2.4 billion that has been reclassified
since the Wachovia merger. This improvement in the lifetime credit outlook for this portfolio is
primarily attributable to the significant modification efforts
and the observed emergence of performance on these modifications as well as the portfolios
delinquency

stabilization over the last several months. This improvement in the credit outlook will
be realized over the remaining life of the portfolio, which is estimated to have a weighted average
life of approximately eight years.

Pick-a-Pay option payment loans may be adjustable or fixed rate. They are home mortgages on which
the customer has the option each month to select from among four payment options: (1) a minimum
payment as described below, (2) an interest-only payment, (3) a fully amortizing 15-year payment,
or (4) a fully amortizing 30-year payment.
The minimum monthly payment for substantially all of our Pick-a-Pay loans is reset annually. The
new minimum monthly payment amount generally increases by no more than 7.5% of the prior minimum
monthly payment. The minimum payment may not be sufficient to pay the monthly interest due and in
those situations a loan on which the customer has made a minimum payment is subject to negative
amortization, where unpaid interest is added to the principal balance of the loan. The amount of
interest that has been added to a loan balance is referred to as deferred interest. Total
deferred interest was $3.2 billion at June 30, 2010, down from $3.7 billion at December 31, 2009,
due to loan modification efforts as well as falling interest rates resulting in the minimum payment
option covering the interest and some principal on many loans. At June 30, 2010, approximately 64%
of customers choosing the minimum payment option did not defer interest. In situations where the
minimum payment is greater than the interest-only option, the customer has only three payment
options available: (1) a minimum required payment, (2) a fully amortizing 15-year payment, or (3) a
fully amortizing 30-year payment.

Deferral of interest on a Pick-a-Pay loan may continue as long as the loan balance remains below a
pre-defined principal cap, which is based on the percentage that the current loan balance
represents to the original loan balance. Loans with an original loan-to-value (LTV) ratio equal to
or below 85% have a cap of 125% of the original loan balance, and these loans represent
substantially all the Pick-a-Pay portfolio. Loans with an original LTV ratio above 85% have a cap
of 110% of the original loan balance. Most of the Pick-a-Pay loans on which there is a deferred
interest balance re-amortize (the monthly payment amount is recast) on the earlier of the date
when the loan balance reaches its principal cap, or the 10-year anniversary of the loan. For a
small population of Pick-a-Pay loans, the recast occurs at the five-year anniversary. After a
recast, the customers new payment terms are reset to the amount necessary to repay the balance
over the remainder of the original loan term.

Due to the terms of this Pick-a-Pay portfolio, we believe there is minimal recast risk over the
next three years. Based on assumptions of a flat rate environment, if all eligible customers elect
the minimum payment option 100% of the time and no balances prepay, we would expect the following
balances of option payment loans to recast based on reaching the principal cap: $2 million in the
remaining half of 2010, $1 million in 2011 and $3 million in 2012. In second quarter 2010, no
option payment loans recast based on reaching the principal cap. In addition, we would expect the
following balances of option payment loans to start fully amortizing due to reaching their recast
anniversary date and also having a payment change at the recast date greater than the annual 7.5%
reset: $12 million in the remaining half of 2010, $37 million in 2011 and $41 million in 2012. In
second quarter 2010, the amount of option payment loans reaching their recast anniversary date and
also having a payment change over the annual 7.5% reset was $12 million.

The following table reflects the geographic distribution of the Pick-a-Pay portfolio broken out
between PCI loans and all other loans. In stressed housing markets with declining home prices and
increasing delinquencies, the LTV ratio is a useful metric in predicting future real estate 1-4
family first mortgage loan performance, including potential charge-offs. Because PCI loans were
initially recorded at fair value written down for expected credit losses, the ratio of the carrying
value to the current collateral value for

acquired loans with credit impairment will be lower as compared with the LTV based on the unpaid
principal. For informational purposes, we have included both ratios in the following table.

PICK-A-PAY PORTFOLIO (1)

PCI loans

All other loans

Ratio of

carrying

Unpaid

Current

value to

Unpaid

Current

principal

LTV

Carrying

current

principal

LTV

Carrying

(in millions)

balance

ratio (2)

value (3)

value

balance

ratio (2)

value (3)

June 30, 2010

California

$

34,458

137

%

$

23,505

93

%

$

22,653

90

%

$

22,283

Florida

5,375

146

3,098

84

4,817

109

4,621

New Jersey

1,590

100

1,241

77

2,747

81

2,729

Texas

412

80

366

71

1,842

65

1,846

Washington

601

101

519

86

1,380

84

1,366

Other states

8,582

117

6,170

83

12,654

88

12,464

Total Pick-a-Pay loans

$

51,018

$

34,899

$

46,093

$

45,309

December 31, 2009

California

$

37,341

141

%

$

25,022

94

%

$

23,795

93

%

$

23,626

Florida

5,751

139

3,199

77

5,046

104

4,942

New Jersey

1,646

101

1,269

77

2,914

82

2,912

Texas

442

82

399

74

1,967

66

1,973

Washington

633

103

543

88

1,439

84

1,435

Other states

9,283

116

6,597

82

13,401

87

13,321

Total Pick-a-Pay loans

$

55,096

$

37,029

$

48,562

$

48,209

(1)

The individual states shown in this table represent the top five
states based on the total net carrying value of the Pick-a-Pay loans
at the beginning of 2010. The December 31, 2009 table has been revised
to conform to the 2010 presentation of top five states.

(2)

The current LTV ratio is calculated as the unpaid principal balance
plus the unpaid principal balance of any equity lines of credit that
share common collateral divided by the collateral value. Collateral
values are generally determined using automated valuation models (AVM)
and are updated quarterly. AVMs are computer-based tools used to
estimate market values of homes based on processing large volumes of
market data including market comparables and price trends for local
market areas.

(3)

Carrying value, which does not reflect the allowance for loan losses,
includes purchase accounting adjustments, which, for PCI loans are the
nonaccretable difference and the accretable yield, and for all other
loans, an adjustment to mark the loans to a market yield at date of
merger less any subsequent charge-offs.

To maximize return and allow flexibility for customers to avoid foreclosure, we have in place
several loss mitigation strategies for our Pick-a-Pay loan portfolio. We contact customers who are
experiencing difficulty and may in certain cases modify the terms of a loan based on a customers
documented income and other circumstances.

We also have taken steps to work with customers to refinance or restructure their Pick-a-Pay loans
into other loan products. For customers at risk, we offer combinations of term extensions of up to
40 years (from 30 years), interest rate reductions, forbearance of principal, interest only
payments for a period of time and, in geographies with substantial property value declines, we will
even offer permanent principal reductions.

In fourth quarter 2009, we rolled out the U.S. Treasury Departments HAMP to the customers in this
portfolio. As of June 30, 2010, over 15,000 HAMP applications were being reviewed by our loan
servicing department and an additional 13,500 loans have been approved for the HAMP trial
modification. We believe a key factor to successful loss mitigation is tailoring the revised loan
payment to the customers sustainable income. We continually reassess our loss mitigation
strategies and may adopt additional or different strategies in the future.

In second quarter 2010, we completed 7,052 proprietary and HAMP loan modifications and have
completed over 64,000 modifications since acquisition. The majority of the loan modifications were

concentrated in our PCI Pick-a-Pay loan portfolio. Approximately 5,400 modification offers were
proactively sent to customers in second quarter 2010. As part of the modification process, the
loans are re-underwritten, income is documented and the negative amortization feature is
eliminated. Most of the modifications result in material payment reduction to the customer.
Because of the write-down of the PCI loans in purchase accounting, our post merger modifications to
PCI Pick-a-Pay loans have not resulted in any modification-related provision for credit losses. To
the extent we modify loans not in the PCI Pick-a-Pay portfolio, we establish an impairment reserve
in accordance with the applicable accounting requirements for loan restructurings.

Home Equity Portfolios

The deterioration in specific
segments of the legacy Wells Fargo Home Equity portfolios, which
began almost three years ago, required a targeted approach to managing these assets. In fourth quarter
2007, a liquidating portfolio was identified, consisting of home equity loans generated through the
wholesale channel not behind a Wells Fargo first mortgage, and home equity loans acquired through
correspondents. The liquidating portion of the Home Equity portfolio was $7.6 billion at June 30,
2010, compared with $8.4 billion at December 31, 2009. The loans in this liquidating portfolio
represent about 1% of total loans outstanding at June 30, 2010, and contain some of the highest
risk in our $123.0 billion Home Equity portfolio, with a loss rate of 10.90% compared with 3.54%
for the core portfolio. The loans in the liquidating portfolio are largely concentrated in
geographic markets that have experienced the most abrupt and steepest declines in housing prices.
The core portfolio was $115.3 billion at June 30, 2010, of which 97% was originated through the
retail channel and approximately 19% of the outstanding balance was in a first lien position. The
following table includes the credit attributes of these two portfolios. California loans represent
the largest state concentration in each of these portfolios and have experienced among the highest
early-term delinquency and loss rates.

Wells Fargo Financials portfolio consists of real estate loans, substantially all of which are
secured debt consolidation loans, and both prime and non-prime auto secured loans, unsecured loans
and credit cards. In July 2010, we announced the restructuring of our Wells Fargo Financial
division and that we are exiting the origination of non-prime portfolio mortgage loans. The
remaining consumer and commercial loan products offered through Wells Fargo Financial will be
realigned with those offered by our other business units and will be available through our expanded
network of community banking and home mortgage stores.

Wells Fargo Financial had $23.5 billion in real estate secured loans at June 30, 2010, and $25.8
billion at December 31, 2009. Of this portfolio, $1.4 billion and $1.6 billion, respectively, was
considered prime based on secondary market standards and has been priced to the customer
accordingly. The remaining portfolio is non-prime but was originated with standards to reduce
credit risk. These loans were originated through our retail channel with documented income, LTV
limits based on credit quality and property characteristics, and risk-based pricing. In addition,
the loans were originated without teaser rates, interest-only or negative amortization features.
Credit losses in the portfolio have increased in the current economic environment compared with
historical levels, but performance remained similar to prime portfolios in the industry with
overall loss rates of 4.20% (annualized) in the first half of 2010 on the entire portfolio. At June
30, 2010, $7.8 billion of the portfolio was originated with customer FICO scores below 620, but
these loans have further restrictions on LTV and debt-to-income ratios intended to limit the credit
risk.

Wells Fargo Financial also had $13.4 billion in auto secured loans and leases at June 30, 2010, and
$16.5 billion at December 31, 2009, of which $4.0 billion and $4.4 billion, respectively, were
originated with customer FICO scores below 620. Loss rates in this portfolio were 2.76%
(annualized) in the second quarter and 3.57% (annualized) in the first half of 2010 for FICO scores
of 620 and above, and 3.59% (annualized) and 4.75% (annualized), respectively, for FICO scores
below 620. These loans were priced based on relative risk. Of this portfolio, $8.3 billion
represented loans and leases originated through its indirect auto business, a channel Wells Fargo
Financial ceased using near the end of 2008.

Wells Fargo Financial had $7.2 billion in unsecured loans and credit card receivables at June 30,
2010, and $8.1 billion at December 31, 2009, of which $0.8 billion and $1.0 billion, respectively,
was originated with customer FICO scores below 620. Net loss rates in this portfolio were 11.51%
(annualized) in the second quarter and 11.41% (annualized) in the first half of 2010 for FICO
scores of 620 and above, and 15.51% (annualized) and 15.08% (annualized), respectively, for FICO
scores below 620. Wells Fargo Financial has tightened credit policies and managed credit lines to
reduce exposure during the recent economic environment.

Credit Cards

Our credit card portfolio, a portion of which is included in the Wells Fargo Financial discussion
above, totaled $22.1 billion at June 30, 2010, which represented 3% of our total outstanding loans
and was smaller than the credit card portfolios of each of our large bank peers. Delinquencies of
30 days or more were 5.3% of credit card outstandings at June 30, 2010, down from 5.5% at December
31, 2009. Net charge-offs were 10.45% (annualized) for second quarter 2010, down from 11.17%
(annualized) in first quarter 2010, reflecting previous risk mitigation efforts that included
tightened underwriting and line management changes. Enhanced underwriting criteria and line
management initiatives instituted in previous quarters continued to have positive effects on loss
performance.

The following table shows the comparative data for nonaccrual loans and other nonperforming assets
(NPAs). We generally place loans on nonaccrual status when:



the full and timely collection of interest or principal becomes uncertain;



they are 90 days (120 days with respect to real estate 1-4 family first and junior lien
mortgages and auto loans) past due for interest or principal (unless both well-secured and in
the process of collection); or



part of the principal balance has been charged off and no restructuring has occurred.

Real estate 1-4 family first mortgage (includes MHFS of $450, $412 and $339)

12,865

12,347

10,100

Real estate 1-4 family junior lien mortgage

2,391

2,355

2,263

Other revolving credit and installment

316

334

332

Total consumer

15,572

15,036

12,695

Foreign

115

135

146

Total nonaccrual loans (1)(2)

27,811

27,301

24,418

As a percentage of total loans

3.63

%

3.49

3.12

Foreclosed assets:

GNMA loans (3)

$

1,344

1,111

960

Other

3,650

2,970

2,199

Real estate and other nonaccrual investments (4)

131

118

62

Total nonaccrual loans and other nonperforming assets

$

32,936

31,500

27,639

As a percentage of total loans

4.30

%

4.03

3.53

(1)

Excludes loans acquired from Wachovia that are accounted for as PCI
loans because they continue to earn interest income from accretable
yield, independent of performance in accordance with their contractual
terms.

(2)

See Note 5 to Financial Statements in this Report and Note 6 (Loans
and Allowance for Credit Losses) to Financial Statements in our 2009
Form 10-K for further information on impaired loans.

(3)

Consistent with regulatory reporting requirements, foreclosed real
estate securing Government National Mortgage Association (GNMA) loans
is classified as nonperforming. Both principal and interest for GNMA
loans secured by the foreclosed real estate are collectible because
the GNMA loans are insured by the Federal Housing Administration (FHA)
or guaranteed by the Department of Veterans Affairs (VA).

(4)

Includes real estate investments (contingent interest loans accounted
for as investments) that would be classified as nonaccrual if these
assets were recorded as loans, and nonaccrual debt securities.

Total NPAs were $32.9 billion (4.30% of total loans) at June 30, 2010, and included $27.8 billion
of nonaccrual loans and $5.1 billion of foreclosed assets, real estate, and other nonaccrual
investments. The growth rate in nonaccrual loans slowed in second quarter 2010, while the balance
still increased from first quarter 2010 by $510 million. The growth in second quarter occurred in
the real estate portfolios (commercial and residential) which consist of secured loans. Nonaccruals
in all other loan portfolios were essentially flat or down. New inflows to nonaccrual loans
continued to decline (down 18% linked quarter). The amount of disposed nonaccruals increased (up
12% linked quarter), but was below the level of inflows.

Typically, changes to nonaccrual loans period-over-period represent inflows for loans that reach a
specified past due status, offset by reductions for loans that are charged off, sold, transferred
to foreclosed properties, or are no longer classified as nonaccrual because they return to accrual
status. During 2009, due to purchase accounting, the rate of growth in nonaccrual loans was
higher than it would have been without PCI loan accounting because
the balance of nonaccrual loans in Wachovias
loan portfolio was approximately zero at the beginning of 2009, due to purchase accounting write-downs taken at
the close of acquisition. The impact of purchase accounting on our credit data will diminish over
time. In addition, we have also increased loan modifications and restructurings to assist
homeowners and other borrowers in the current difficult economic cycle. This increase is expected
to result in elevated nonaccrual loan levels in those portfolios which are being actively modified
for longer periods because consumer nonaccrual loans that have been modified remain in nonaccrual
status generally until a borrower has made six consecutive months of payments, or equivalent,
inclusive of consecutive payments made prior to the modification. Loans are re-underwritten at the
time of the modification in accordance with underwriting guidelines established for governmental
and proprietary loan modification programs. For an accruing loan that has been modified, if the
borrower has demonstrated performance under the previous terms and shows the capacity to continue
to perform under the restructured terms, the loan will remain in accruing status. Otherwise, the
loan will be placed in a nonaccrual status generally until the borrower has made six consecutive
months of payments, or equivalent.

Loss expectations for nonaccrual loans are driven by delinquency rates, default probabilities and
severities. While nonaccrual loans are not free of loss content, we believe the estimated loss
exposure remaining in these balances is significantly mitigated by four factors. First, 98% of
nonaccrual loans are secured. Second, losses have already been recognized on 39% of the consumer
nonaccruals and 33% of commercial nonaccruals. Residential nonaccrual loans are written down to net
realizable value at 180 days past due, except for loans that go into trial modification prior to
going 180 days past due, which are not written down in the trial period (3 months) as long as trial
payments are being made timely. Third, as of June 30, 2010, 54% of commercial nonaccrual loans were
current on interest. Fourth, there are certain nonaccruals for which there are loan level reserves
in the allowance, while others are covered by pool level reserves.

Commercial and CRE nonaccrual loans, net of write-downs, amounted to $12.1 billion at both June 30
and March 31, 2010. Consumer nonaccrual loans (including nonaccrual troubled debt restructurings
(TDRs)) amounted to $15.6 billion at June 30, 2010, compared with $15.0 billion at March 31, 2010.
The $536 million increase in nonaccrual consumer loans from March 31, 2010, represented an increase
of $518 million in 1-4 family first mortgage loans and an increase of $36 million in 1-4 family
junior liens. Residential mortgage nonaccrual loans increased largely due to slower disposition as
quarterly inflow has remained relatively stable. Federal government programs, such as HAMP, and
Wells Fargo proprietary programs, such as the Companys Pick-a-Pay Mortgage Assistance program,
require customers to provide updated documentation and complete trial
repayment periods, to evidence sustained performance, before the loan can be removed from nonaccrual status. In
addition, for loans in foreclosure, many states, including California and Florida where Wells Fargo
has significant exposures, have enacted legislation that significantly increases the time frames to
complete the foreclosure process,

meaning that loans will remain in nonaccrual status for longer periods. At the conclusion of the
foreclosure process, we continue to sell real estate owned in a very timely fashion.

When a consumer real estate loan is 120 days past due, we move it to nonaccrual status and when the
loan reaches 180 days past due it is our policy to write these loans down to net realizable value,
except for trial modifications. Thereafter, we revalue each loan in nonaccrual status regularly and
recognize additional charges if needed. Our quarterly market classification process, employed since
late 2007, indicates as of June 30, 2010, that home values in most metropolitan statistical areas
have stabilized. We anticipate manageable additional write-downs while properties work through the
foreclosure process.

Of the $15.6 billion of consumer nonaccrual loans:



99% are secured, substantially all by real estate; and



21% have a combined LTV ratio of 80% or below.

In addition to the $15.6 billion of consumer nonaccrual loans, there were also accruing consumer
TDRs of $8.2 billion at June 30, 2010. In total, there were $23.8 billion of consumer nonaccrual
loans and accruing TDRs at June 30, 2010.

NPAs at June 30, 2010, included $1.3 billion of loans that are FHA insured or VA guaranteed, which
are expected to have little to no loss content, and $3.7 billion of foreclosed assets, which have
been written down to the value of the underlying collateral. Foreclosed assets increased $913
million, or 22%, in second quarter 2010 from the prior quarter. Of this increase, $427 million were
foreclosed loans from the PCI portfolio that are now recorded as foreclosed assets. The majority of
the inherent loss content in these assets has already been accounted for, and increases to this
population of assets should have minimal additional impact to expected loss levels.

Given our real estate-secured loan concentrations and current economic conditions, we anticipate
continuing to hold a high level of NPAs on our balance sheet. We believe the loss content in the
nonaccrual loans has either already been realized or provided for in the allowance for credit
losses at June 30, 2010. We remain focused on proactively identifying problem credits, moving them
to nonperforming status and recording the loss content in a timely manner. Weve increased staffing
in our workout and collection organizations to ensure troubled borrowers receive the attention and
help they need. See the Risk Management  Allowance for Credit Losses section in this Report for
additional information. The performance of any one loan can be affected by external factors, such
as economic or market conditions, or factors affecting a particular borrower.

The following table provides information regarding the recorded investment in loans modified in
TDRs.

June 30

,

Mar. 31

,

Dec. 31

,

(in millions)

2010

2010

2009

Consumer TDRs:

Real estate 1-4 family first mortgage

$

9,525

7,972

6,685

Real estate 1-4 family junior lien mortgage

1,469

1,563

1,566

Other revolving credit and installment

502

310

17

Total consumer TDRs

11,496

9,845

8,268

Commercial and commercial real estate TDRs

656

386

265

Total TDRs

$

12,152

10,231

8,533

TDRs on nonaccrual status

$

3,877

2,738

2,289

TDRs on accrual status

8,275

7,493

6,244

Total TDRs

$

12,152

10,231

8,533

We establish an impairment reserve when a loan is restructured in a TDR. The impairment reserve for
TDRs was $2.9 billion at June 30, 2010, and $1.8 billion at December 31, 2009. Total charge-offs
related to loans modified in a TDR were $486 million and $163 million for the six months ended 2010
and 2009, respectively.

Our nonaccrual policies are generally the same for all loan types when a restructuring is involved.
We underwrite consumer loans at the time of restructuring to determine if there is sufficient
evidence of sustained repayment capacity based on the borrowers documented income, debt to income
ratios, and other factors. Any loans lacking sufficient evidence of sustained repayment capacity at
the time of modification are charged down to the fair value of the collateral. If the borrower has
demonstrated performance under the previous terms and the underwriting process shows capacity to
continue to perform under the restructured terms, the loan will remain in accruing status.
Otherwise, the loan will be placed in nonaccrual status until the borrower demonstrates a sustained
period of performance which we generally believe to be six consecutive months of payments, or
equivalent. Loans will also be placed on nonaccrual, and a corresponding charge-off recorded to the
loan balance, if we believe that principal and interest contractually due under the modified
agreement will not be collectible.

We do not forgive principal for a majority of our TDRs, but in those situations where principal is
forgiven, the entire amount of such principal forgiveness is immediately charged off. When a TDR
performs in accordance with its modified terms, the loan either continues to accrue interest (for
performing loans), or will return to accrual status after the borrower demonstrates a sustained
period of performance.

Loans included in this category are 90 days or more past due as to interest or principal and still
accruing, because they are (1) well-secured and in the process of collection or (2) real estate 1-4
family mortgage loans or consumer loans exempt under regulatory rules from being classified as
nonaccrual. PCI loans are excluded from the disclosure of loans 90 days or more past due and still
accruing interest. Even though certain of them are 90 days or more contractually past due, they are
considered to be accruing because the interest income on these loans relates to the accretable
yield under the accounting for PCI loans and not to contractual interest payments.

Loans 90 days or more past due and still accruing totaled $19.4 billion at June 30, 2010, and $22.2
billion at December 31, 2009. The totals included $14.4 billion and $15.3 billion, respectively, in
advances pursuant to our servicing agreements to GNMA mortgage pools and similar loans whose
repayments are insured by the FHA or guaranteed by the VA.

LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING (EXCLUDING INSURED/GUARANTEED GNMA AND SIMILAR
LOANS) (1)

June 30

,

Dec. 31

,

(in millions)

2010

2009

Commercial and commercial real estate:

Commercial

$

540

590

Real estate mortgage

654

1,014

Real estate construction

471

909

Total commercial and commercial real estate

1,665

2,513

Consumer:

Real estate 1-4 family first mortgage (2)

1,049

1,623

Real estate 1-4 family junior lien mortgage (2)

352

515

Credit card

610

795

Other revolving credit and installment

1,300

1,333

Total consumer

3,311

4,266

Foreign

21

73

Total

$

4,997

6,852

(1)

The carrying value of PCI loans contractually 90 days or more past due was $15.1
billion at June 30, 2010, and $16.1 billion at December 31, 2009. These amounts
are excluded from the above table as PCI loan accretable yield interest
recognition is independent from the underlying contractual loan delinquency
status. See table on page 17 for detail of PCI loans.

(2)

Includes mortgage loans held for sale 90 days or more past due and still accruing.

Net charge-offs in second quarter 2010 were $4.5 billion (2.33% of average total loans outstanding,
annualized) compared with $5.3 billion (2.71%) in first quarter 2010, and $4.4 billion (2.11%) a
year ago. This quarters significant reduction in credit losses confirms our prior outlook that
credit losses peaked in fourth quarter 2009 and credit quality appears to have improved earlier and
to a greater extent than we had previously expected. Total credit losses included $1.3 billion of
commercial and commercial real estate loans (1.80%) and $3.1 billion of consumer loans (2.79%) in
second quarter 2010 as shown in the table above.

Allowance for Credit Losses

The allowance for credit losses, which consists of the allowance for loan losses and the reserve
for unfunded credit commitments, is managements estimate of credit losses inherent in the loan
portfolio at the balance sheet date and excludes loans carried at fair value. The detail of the
changes in the allowance for credit losses, including charge-offs and recoveries by loan category,
is in Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

We employ a disciplined process and methodology to establish our allowance for loan losses each
quarter. This process takes into consideration many factors, including historical and forecasted
loss trends, loan-level credit quality ratings and loan grade specific loss factors. The process
involves subjective as well as complex judgments. In addition, we
review a variety of credit metrics and trends. However, these trends are not determinative of the adequacy of the allowance as we use
several analytical tools in determining the adequacy of the allowance.

For individually graded (typically commercial) portfolios, we generally use loan-level credit
quality ratings, which are based on borrower information and strength of collateral, combined with
historically based grade specific loss factors. The allowance for individually rated nonaccruing
commercial loans with an outstanding exposure of $10 million or greater is determined through an
individual impairment analysis. Those individually rated nonaccruing commercial loans with
exposures below $10 million are evaluated using a loss factor assumption. For statistically
evaluated portfolios (typically consumer), we

generally leverage models that use credit-related
characteristics such as credit rating scores, delinquency migration rates, vintages, and portfolio
concentrations to estimate loss content. Additionally, the allowance for TDRs is based on the risk
characteristics of the modified loans and the resultant estimated cash flows discounted at the
pre-modification effective yield of the loan. While the allowance is determined using product and
business segment estimates, it is available to absorb losses in the entire loan portfolio.

At June 30, 2010, the allowance for loan losses totaled $24.6 billion (3.21% of total loans),
compared with $25.1 billion (3.22%), at March 31, 2010. The allowance for credit losses was $25.1
billion (3.27% of total loans) at June 30, 2010, and $25.7 billion (3.28%) at March 31, 2010. The
allowance for credit losses included $225 million at June 30, 2010, and $247 million at March 31,
2010, related to PCI loans acquired from Wachovia. Loans acquired from Wachovia are included in
total loans net of related purchase accounting net write-downs. The reserve for unfunded credit
commitments was $501 million at June 30, 2010, and $533 million at March 31, 2010. In addition to
the allowance for credit losses there was $16.2 billion of nonaccretable difference at June 30,
2010, and $19.9 billion at March 31, 2010, to absorb losses for PCI loans. For additional
information on PCI loans, see the Balance Sheet Analysis  Loan Portfolio section and Note 5
(Loans and Allowance for Credit Losses) to Financial Statements in this Report.

The ratio of the allowance for credit losses to total nonaccrual loans was 90% at June 30, 2010,
and 94% at March 31, 2010. In general, this ratio may fluctuate significantly from period to period
due to such factors as the mix of loan types in the portfolio, borrower credit strength and the
value and marketability of collateral. Over half of nonaccrual loans were home mortgages, auto and
other consumer loans at June 30, 2010.

Total provision for credit losses was $4.0 billion in second quarter 2010, down from the peak of
$6.1 billion in third quarter 2009 and from $5.3 billion in first quarter 2010. The second quarter
2010 provision included a $500 million reserve release, compared with a $700 million reserve build
a year ago. Total provision for credit losses was $9.3 billion for the first half of 2010,
including the $500 million second quarter reserve release, compared with $9.6 billion for the first
half of 2009, which included a $2.0 billion reserve build.

We believe the allowance for credit losses of $25.1 billion was adequate to cover credit losses
inherent in the loan portfolio, including unfunded credit commitments, at June 30, 2010. The
allowance for credit losses is subject to change and we consider existing factors at the time,
including economic and market conditions and ongoing internal and external examination processes.
Due to the sensitivity of the allowance for credit losses to changes in the economic environment,
it is possible that unanticipated economic deterioration would create incremental credit losses not
anticipated as of the balance sheet date. Our process for determining the adequacy of the allowance
for credit losses is discussed in the Financial Review  Critical Accounting Policies 
Allowance for Credit Losses section and Note 5 (Loans and Allowance for Credit Losses) to
Financial Statements in our 2009 Form 10-K.

We sell mortgage loans to various parties, including government sponsored entities (GSEs), under
contractual provisions that include various representations and warranties which typically cover
ownership of the loan, compliance with loan criteria set forth in the applicable agreement,
validity of the lien securing the loan, absence of delinquent taxes or liens against the property
securing the loan, and similar matters. We may be required to repurchase the mortgage loans with
identified defects, indemnify the investor or insurer, or reimburse the investor for credit loss
incurred on the loan (collectively repurchase) in the event of a material breach of such
contractual representations or warranties. The time periods specified in our mortgage loan sales
contracts to respond to repurchase requests vary, but are generally 90 days or less and generally
include no specific remedies if the repurchase time period is not met. Upon receipt of a repurchase
request, we work with our investors to arrive at a mutually agreeable resolution. Repurchase
demands are typically reviewed on an individual loan by loan basis to validate the claims made by
the investor and determine if a contractually required repurchase event occurred. Occasionally, in
lieu of conducting the loan level evaluation, we may negotiate global settlements in order to
resolve a pipeline of demands in lieu of repurchasing the loans. We manage the risk associated with
potential repurchases or other forms of settlement through our underwriting and quality assurance
practices and by servicing mortgage loans to meet investor and secondary market standards.

We establish mortgage repurchase reserves related to various representations and warranties that
reflect managements estimate of losses based on a combination of factors. Such factors incorporate
estimated levels of defects based on internal quality assurance sampling, default expectations,
historical investor repurchase demand and appeals success rates (where the investor rescinds the
demand based on a cure of the defect or acknowledges that the loan satisfies the investors
applicable representations and warranties), reimbursement by correspondent and other third party
originators, and projected loss severity. We establish a reserve at the time loans are sold and
continually update our reserve estimate during their life. Although investors may demand repurchase
at any time, the majority of repurchase demands occurs in the first 24 to 36 months following
origination of the mortgage loan and can vary by investor. Currently, repurchase demands primarily
relate to 2006 through 2008 vintages. For additional information on our repurchase liability,
including an adverse impact analysis, see Note 7 (Securitizations and Variable Interest Entities)
to Financial Statements in this Report.

During second quarter 2010, we continued to experience elevated levels of repurchase activity
measured by number of loans, investor repurchase demands and our level of repurchases. In the
second quarter and first half of 2010 we repurchased or otherwise settled mortgage loans with
balances of $530 million and $1.1 billion, respectively, and incurred net losses on repurchased or
settled loans of $270 million and $442 million, respectively. Most repurchases under our
representation and warranty provisions are attributable to borrower misrepresentations and
appraisals obtained at origination that investors believe do not fully comply with applicable
industry standards. A majority of our repurchases continued to be government agency conforming
loans from Freddie Mac and Fannie Mae and predominantly from 2006 through 2008 originations.

Adjustments made to our mortgage repurchase reserve in recent periods have incorporated the
increase in repurchase demands and mortgage insurance rescissions that we have experienced. The
table below provides the number of unresolved repurchase demands and mortgage insurance rescissions
as of June 30, 2010, and December 31, 2009.

June 30, 2010

Dec. 31, 2009

Original

Original

Number of

loan

Number of

loan

($ in millions)

loans

balance (1)

loans

balance (1)

Government sponsored entities (2)

12,536

$

2,840

8,354

$

1,911

Private

3,160

707

2,929

886

Mortgage insurance rescissions (3)

2,979

760

2,965

859

Total

18,675

$

4,307

14,248

$

3,656

(1)

While original loan balance related to these demands is presented above, the establishment of
the repurchase reserve is based on a combination of factors, such as our appeals success
rates, reimbursement by correspondent and other third party originators, and projected loss
severity, which is driven by the difference between the current loan balance and the
estimated collateral value less costs to sell the property.

(2)

Includes repurchase demands of 2,141 and $417 million and 1,536 and $322 million for June 30,
2010, and December 31, 2009, respectively, received from investors on mortgage servicing
rights acquired from other originators. We have the right of recourse against the seller for
these repurchase demands and would only incur a loss on these demands for counterparty risk
associated with the seller.

(3)

As part of our representations and warranties in our loan sales contracts, we represent that
certain loans have mortgage insurance. To the extent the mortgage insurance is rescinded by
the mortgage insurer, the lack of insurance may result in a repurchase demand from an
investor.

Customary with industry practice, Wells Fargo has the right of recourse against correspondent
lenders with respect to representations and warranties. Of the repurchase demands presented in the
table above, approximately 20% relate to loans purchased from correspondent lenders. Due primarily
to the financial difficulties of some correspondent lenders, we typically recover on average
approximately 50% from these lenders, and this estimate of their performance is incorporated in the
establishment of our mortgage repurchase reserve.

Our reserve for repurchases, included in Accrued expenses and other liabilities in our
consolidated financial statements, was $1.4 billion at June 30, 2010, and $1.0 billion at December
31, 2009. In the second quarter and first half of 2010, $382 million and $784 million,
respectively, of additions to the reserve were recorded, which reduced net gains on mortgage loan
origination/sales. Our additions to the repurchase reserve this quarter reflect updated
assumptions about the losses we expect on repurchases as well as the recent increase in
repurchase demands and mortgage insurance rescissions as noted above. Also, based on current
uncertainty about the economic recovery and the loss severity we continue to experience on
repurchased loans, we extended our assumptions about the time period over which we will incur the
current elevated level of loss severity.

The
following table summarizes the changes in our mortgage repurchase
reserve.

The
mortgage repurchase reserve of $1.4 billion at June 30, 2010, represents our
best estimate of the probable loss that we may incur for various representations and warranties in
the contractual provisions of our sales of mortgage loans. There may
be a wide range of reasonably
possible losses in excess of the estimated liability that cannot be estimated with confidence.
Because the level of mortgage loan repurchase losses are dependent on economic factors, investor
demand strategies and other external conditions that may change over the life of the underlying
loans, the level of the reserve for mortgage loan repurchase losses is difficult to estimate and
requires considerable management judgment. We maintain regular contact with the GSEs and other
significant investors to monitor and address their repurchase demand practices and concerns.

To the extent that economic conditions and the housing market do not recover or future investor
repurchase demand and appeals success rates differ from past experience, we could continue to have
increased demands and increased loss severity on repurchases, causing future additions to the
repurchase reserve. However, some of the underwriting standards that were permitted by the GSEs for
conforming loans in the 2006 through 2008 vintages, which significantly contributed to recent
levels of repurchase demands, were tightened starting in mid to late 2008. Accordingly, we do not
expect a similar rate of repurchase requests from the 2009 and prospective vintages, absent
deterioration in economic conditions or changes in investor behavior.

ASSET/LIABILITY MANAGEMENT

Asset/liability management involves the evaluation, monitoring and management of interest rate
risk, market risk, liquidity and funding. The Corporate Asset/Liability Management Committee
(Corporate ALCO)  which oversees these risks and reports periodically to the Finance Committee of
the Board of Directors  consists of senior financial and business executives. Each of our
principal business groups has its own asset/liability management committee and process linked to
the Corporate ALCO process.

Interest Rate Risk

Interest rate risk, which potentially can have a significant earnings impact, is an integral part
of being a financial intermediary. We assess interest rate risk by comparing our most likely
earnings plan with various earnings simulations using many interest rate scenarios that differ in
the direction of interest rate changes, the degree of change over time, the speed of change and the
projected shape of the yield curve. For example, as of June 30, 2010, our most recent simulation
indicated estimated earnings at risk of approximately 1.5% of our most likely earnings plan over
the next 12 months using a scenario in which the federal funds rate rises to 4.25% and the 10-year
Constant Maturity Treasury bond yield rises to 5.00%. Simulation estimates depend on, and will
change with, the size and mix of our actual and projected balance sheet at the time of each
simulation. Due to timing differences between the quarterly valuation of MSRs and the eventual
impact of interest rates on mortgage banking volumes, earnings at risk in any particular quarter
could be higher than the average earnings at risk over the 12-month simulation period, depending on
the path of interest rates and on our hedging strategies for MSRs. See the Risk Management 
Mortgage Banking Interest Rate and Market Risk section in this Report for more information.

We use exchange-traded and over-the-counter (OTC) interest rate derivatives to hedge our interest
rate exposures. The notional or contractual amount, credit risk amount and estimated net fair value
of these derivatives as of June 30, 2010, and December 31, 2009, are presented in Note 11
(Derivatives) to Financial Statements in this Report.

We originate, fund and service mortgage loans, which subjects us to various risks, including
credit, liquidity and interest rate risks. For a discussion of mortgage banking interest rate and
market risk, see pages 67-69 of our 2009 Form 10-K.

In second quarter 2010, a $2.7 billion decrease in the fair value of our MSRs and $3.3 billion gain
on free-standing derivatives used to hedge the MSRs resulted in a net gain of $626 million. This
net gain was largely due to hedge-carry income which reflected the low short-term interest rate
environment. The net gain on the MSR of $626 million in second quarter 2010 was down from $989
million in first quarter 2010 and $1.0 billion a year ago, due to a change in the
composition of the hedge and a hedge position that considered natural business offsets.

While our hedging activities are designed to balance our mortgage banking interest rate risks, the
financial instruments we use may not perfectly correlate with the values and income being hedged.
For example, the change in the value of adjustable-rate mortgages (ARMs) production held for sale
from changes in mortgage interest rates may or may not be fully offset by Treasury and LIBOR
index-based financial instruments used as economic hedges for such ARMs. Additionally, the
hedge-carry income we earn on our economic hedges for the MSRs may not continue if the spread
between short-term and long-term rates decreases, we shift the composition of the hedge to more
interest rate swaps, or there are other changes in the market for mortgage forwards that impact the
implied carry.

For additional information regarding other risk factors related to the mortgage business, see pages
67-69 of our 2009 Form 10-K.

The total carrying value of our residential and commercial MSRs was $14.3 billion at June 30, 2010,
and $17.1 billion at December 31, 2009. The weighted-average note rate on our portfolio of loans
serviced for others was 5.53% at June 30, 2010, and 5.66% at December 31, 2009. Our total MSRs were
0.76% of mortgage loans serviced for others at June 30, 2010, compared with 0.91% at December 31,
2009.

From a market risk perspective, our net income is exposed to changes in interest rates, credit
spreads, foreign exchange rates, equity and commodity prices and their implied volatilities. The
credit risk amount and estimated net fair value of all customer accommodation derivatives are
included in Note 11 (Derivatives) to Financial Statements in this Report. Open, at risk positions
for all trading businesses are monitored by Corporate ALCO.

The standardized approach for monitoring and reporting market risk for the trading activities
consists of value-at-risk (VaR) metrics complemented with factor analysis and stress testing. VaR
measures the worst expected loss over a given time interval and within a given confidence interval.
We measure and report daily VaR at a 99% confidence interval based on actual changes in rates and
prices over the past 250 trading days. The analysis captures all financial instruments that are
considered trading positions. The average one-day VaR throughout second quarter 2010 was $30
million, with a lower bound of $24 million and an upper bound of $40 million. For additional
information regarding market risk related to trading activities, see page 69 of our 2009 Form 10-K.

Market Risk  Equity Markets

We are directly and indirectly affected by changes in the equity markets. For additional
information regarding market risk related to equity markets, see page 69 of our 2009 Form 10-K.

The objective of effective liquidity management is to ensure that we can meet customer loan
requests, customer deposit maturities/withdrawals and other cash commitments efficiently under both
normal operating conditions and under unpredictable circumstances of industry or market stress. To
achieve this objective, Corporate ALCO establishes and monitors liquidity guidelines that require
sufficient asset-based liquidity to cover potential funding requirements and to avoid
over-dependence on volatile, less reliable funding markets. We set these guidelines for both the
consolidated balance sheet and for the Parent to ensure that the Parent is a source of strength for
its regulated, deposit-taking banking subsidiaries.

Debt securities in the securities available-for-sale portfolio provide asset liquidity, in addition
to the immediately liquid resources of cash and due from banks and federal funds sold, securities
purchased under resale agreements and other short-term investments. Asset liquidity is further
enhanced by our ability to sell or securitize loans in secondary markets and to pledge loans to
access secured borrowing facilities through the Federal Home Loan Banks, the FRB, or the U.S.
Treasury.

Liquidity is also available through our ability to raise funds in a variety of domestic and
international money and capital markets. We access capital markets for long-term funding through
issuances of registered debt securities, private placements and asset-backed secured funding.
Investors in the long-term capital markets generally will consider, among other factors, a
companys credit rating in making investment decisions. Rating agencies base their ratings on many
quantitative and qualitative factors, including capital adequacy, liquidity, asset quality,
business mix, the level and quality of earnings, and rating agency assumptions regarding the
probability and extent of Federal financial assistance or support for certain large financial
institutions. Adverse changes in these factors could result in a reduction of our credit ratings;
however, a reduction in our credit ratings would not cause us to violate any of our debt covenants.
See the Risk Factors section of this Report and our First Quarter Form 10-Q for additional
information regarding recent legislative developments and our credit ratings.

Parent. Under SEC rules, the Parent is classified as a well-known seasoned issuer, which allows
it to file a registration statement that does not have a limit on issuance capacity. Well-known
seasoned issuers generally include those companies with a public float of common equity of at
least $700 million or those companies that have issued at least $1 billion in aggregate principal
amount of non-convertible securities, other than common equity, in the last three years. In June
2009, the Parent filed a registration statement with the SEC for the issuance of senior and
subordinated notes, preferred stock and other securities. The Parents ability to issue debt and
other securities under this registration statement is limited by the debt issuance authority
granted by the Board. The Parent is currently authorized by the Board to issue $60 billion in
outstanding short-term debt and $170 billion in outstanding long-term debt.

At June 30, 2010, the Parent had outstanding short-term debt of $10.2 billion and long-term debt of
$110.2 billion under these authorities. During the first half of 2010, the Parent issued a total of
$1.3 billion in non-guaranteed registered senior notes. Effective August 2009, the Parent
established an SEC registered $25 billion medium-term note program series I and J (MTN  I&J),
under which it may issue senior and subordinated debt securities. Also, effective April 2010, the
Parent established an SEC registered $25 billion medium-term note program series K (MTN  K), under
which it may issue senior

debt securities linked to one or more indices. In December 2009, the Parent established a $25
billion European medium-term note programme (EMTN), under which it may issue senior and
subordinated debt securities. In March 2010, the Parent increased its Australian medium-term note
programme (AMTN) from A$5 billion to A$10 billion, under which it may issue senior and subordinated
debt securities. The EMTN and AMTN securities are not registered with the SEC and may not be
offered in the United States without applicable exemptions from registration. The Parent has $21.8
billion, $25.0 billion, $25.0 billion, and A$6.8 billion available for issuance under the MTN -
I&J, MTN - K, EMTN and AMTN, respectively. The proceeds from securities issued in the first half of
2010 were used for general corporate purposes, and we expect the proceeds from securities issued in
the future will also be used for general corporate purposes. The Parent also issues commercial
paper from time to time, subject to its short-term debt limit.

Wells Fargo Bank, N.A. Wells Fargo Bank, N.A. is authorized by its board of directors to issue $100
billion in outstanding short-term debt and $125 billion in outstanding long-term debt. In December
2007, Wells Fargo Bank, N.A. established a $100 billion bank note program under which, subject to
any other debt outstanding under the limits described above, it may issue $50 billion in
outstanding short-term senior notes and $50 billion in long-term senior or subordinated notes. At
June 30, 2010, Wells Fargo Bank, N.A. had remaining issuance capacity on the bank note program of
$50 billion in short-term senior notes and $50 billion in long-term senior or subordinated notes.
Securities are issued under this program as private placements in accordance with Office of the
Comptroller of the Currency (OCC) regulations. Effective March 20, 2010, Wachovia Bank, N.A. merged
with and into Wells Fargo Bank, N.A.

Wells Fargo Financial. In January 2010, Wells Fargo Financial Canada Corporation (WFFCC), an
indirect wholly owned Canadian subsidiary of the Parent, qualified with the Canadian provincial
securities commissions CAD$7.0 billion in medium-term notes for distribution from time to time in
Canada. At June 30, 2010, CAD$7.0 billion remained available for future issuance. All medium-term
notes issued by WFFCC are unconditionally guaranteed by the Parent.

Federal Home Loan Bank Membership

We are a member of the Federal Home Loan Banks based in Dallas, Des Moines and San Francisco
(collectively, the FHLBs). Each member of each of the FHLBs is required to maintain a minimum
investment in capital stock of the applicable FHLB. The board of directors of each FHLB can
increase the minimum investment requirements in the event it has concluded that additional capital
is required to allow it to meet its own regulatory capital requirements. Any increase in the
minimum investment requirements outside of specified ranges requires the approval of the Federal
Housing Finance Board. Because the extent of any obligation to increase our investment in any of
the FHLBs depends entirely upon the occurrence of a future event, potential future payments to the
FHLBs are not determinable.

CAPITAL MANAGEMENT

We have an active program for managing stockholders equity and regulatory capital and we maintain
a comprehensive process for assessing the Companys overall capital adequacy. We generate capital
internally primarily through the retention of earnings net of dividends. Our objective is to
maintain capital levels at the Company and its bank subsidiaries above the regulatory
well-capitalized thresholds by an amount commensurate with our risk profile. Our potential
sources of stockholders equity include retained earnings and issuances of common and preferred
stock. Retained earnings increased $4.6 billion from December 31, 2009, predominantly from Wells
Fargo net income of $5.6 billion, less common and preferred dividends of $889 million. During the
first half of 2010, we issued approximately 55 million shares of common stock, with net proceeds of
$865 million, including 18 million shares during the period

under various employee benefit (including our employee stock option plan) and director plans, as
well as under our dividend reinvestment and direct stock purchase programs.

On April 29, 2010, following stockholder approval, the Company amended its certificate of
incorporation to provide for an increase in the number of shares of the Companys common stock
authorized for issuance from 6 billion to 9 billion.

From time to time the Board authorizes the Company to repurchase shares of our common stock.
Although we announce when the Board authorizes share repurchases, we typically do not give any
public notice before we repurchase our shares. Various factors determine the amount and timing of
our share repurchases, including our capital requirements, the number of shares we expect to issue
for acquisitions and employee benefit plans, market conditions (including the trading price of our
stock), and regulatory and legal considerations. The FRB published clarifying supervisory guidance
in first quarter 2009, SR 09-4 Applying Supervisory Guidance and Regulations on the Payment of
Dividends, Stock Redemptions, and Stock Repurchases at Bank Holding Companies, pertaining to the
FRBs criteria, assessment and approval process for reductions in capital. As with all 19
participants in the FRBs Supervisory Capital Assessment Program, under this supervisory letter,
before repurchasing our common shares, we must consult with the FRB staff and demonstrate that the
proposed actions are consistent with the existing supervisory guidance, including demonstrating
that our internal capital assessment process is consistent with the complexity of our activities
and risk profile. In 2008, the Board authorized the repurchase of up to 25 million additional
shares of our outstanding common stock. During second quarter 2010, we repurchased 1 million shares
of our common stock, all from our employee benefit plans. At June 30, 2010, the total remaining
common stock repurchase authority was approximately 4 million shares.

Historically, our policy has been to repurchase shares under the safe harbor conditions of Rule
10b-18 of the Securities Exchange Act of 1934 including a limitation on the daily volume of
repurchases. Rule 10b-18 imposes an additional daily volume limitation on share repurchases during
a pending merger or acquisition in which shares of our stock will constitute some or all of the
consideration. Our management may determine that during a pending stock merger or acquisition when
the safe harbor would otherwise be available, it is in our best interest to repurchase shares in
excess of this additional daily volume limitation. In such cases, we intend to repurchase shares in
compliance with the other conditions of the safe harbor, including the standing daily volume
limitation that applies whether or not there is a pending stock merger or acquisition.

In connection with our participation in the Troubled Asset Relief Program Capital Purchase Program,
we issued to the U.S. Treasury Department warrants to purchase 110,261,688 shares of our common
stock with an exercise price of $34.01 per share. On May 26, 2010, in an auction by the U.S.
Treasury, we purchased 70,165,963 of the warrants at a price of $7.70 per warrant. The Board has
authorized the repurchase of up to $1 billion of the warrants, including the warrants purchased in
the auction. As of June 30, 2010, $460 million of that authority remained. Depending on market
conditions, we may repurchase from time to time additional warrants and/or our outstanding debt
securities in privately negotiated or open market transactions, by tender offer or otherwise.

The Company and each of our subsidiary banks are subject to various regulatory capital adequacy
requirements administered by the FRB and the OCC. Risk-based capital (RBC) guidelines establish a
risk-adjusted ratio relating capital to different categories of assets and off-balance sheet
exposures. At June 30, 2010, the Company and each of our subsidiary banks were well capitalized
under applicable regulatory capital adequacy guidelines. See Note 18 (Regulatory and Agency Capital
Requirements) to Financial Statements in this Report for additional information.

Current regulatory RBC rules are based primarily on broad credit-risk considerations and limited
market-related risks, but do not take into account other types of risk a financial company may be
exposed to. Our capital adequacy assessment process contemplates a wide range of risks that the Company is exposed
to and also takes into consideration our performance under a variety of economic conditions, as
well as regulatory expectations and guidance, rating agency viewpoints and the view of capital
market participants.

At June 30, 2010, stockholders equity and Tier 1 common equity levels were higher than the quarter
ending prior to the Wachovia acquisition. During 2009, as regulators and the market focused on the
composition of regulatory capital, the Tier 1 common equity ratio gained significant prominence as
a metric of capital strength. There is no mandated minimum or well capitalized standard for Tier
1 common equity; instead the RBC rules state voting common stockholders equity should be the
dominant element within Tier 1 common equity. Tier 1 common equity was $73.9 billion at June 30,
2010, or 7.61% of risk-weighted assets, an increase of $8.4 billion from December 31, 2009. The
following table provides the details of the Tier 1 common equity calculation.

TIER 1 COMMON EQUITY (1)

June 30

,

Dec. 31

,

(in billions)

2010

2009

Total equity

$

121.4

114.4

Less:

Noncontrolling interests

(1.6

)

(2.6

)

Total Wells Fargo stockholders equity

119.8

111.8

Less:

Preferred equity

(8.1

)

(8.1

)

Goodwill and intangible assets (other than MSRs)

(36.7

)

(37.7

)

Applicable deferred taxes

5.0

5.3

Deferred tax asset limitation



(1.0

)

MSRs over specified limitations

(1.0

)

(1.6

)

Cumulative other comprehensive income

(4.8

)

(3.0

)

Other

(0.3

)

(0.2

)

Tier 1 common equity

(A)

$

73.9

65.5

Total risk-weighted assets (2)

(B)

$

970.8

1,013.6

Tier 1 common equity to total risk-weighted assets

(A)/(B)

7.61

%

6.46

(1)

Tier 1 common equity is a non-generally accepted accounting principle
(GAAP) financial measure that is used by investors, analysts and bank
regulatory agencies, to assess the capital position of financial
services companies. Tier 1 common equity includes total Wells Fargo
stockholders equity, less preferred equity, goodwill and intangible
assets (excluding MSRs), net of related deferred taxes, adjusted for
specified Tier 1 regulatory capital limitations covering deferred
taxes, MSRs, and cumulative other comprehensive income. Management
reviews Tier 1 common equity along with other measures of capital as
part of its financial analyses and has included this non-GAAP
financial information, and the corresponding reconciliation to total
equity, because of current interest in such information on the part of
market participants.

(2)

Under the regulatory guidelines for risk-based capital, on-balance
sheet assets and credit equivalent amounts of derivatives and
off-balance sheet items are assigned to one of several broad risk
categories according to the obligor or, if relevant, the guarantor or
the nature of any collateral. The aggregate dollar amount in each risk
category is then multiplied by the risk weight associated with that
category. The resulting weighted values from each of the risk
categories are aggregated for determining total risk-weighted assets.

Our significant accounting policies (see Note 1 (Summary of Significant Accounting Policies) to
Financial Statements in this Report) are fundamental to understanding our results of operations and
financial condition, because they require that we use estimates and assumptions that may affect the
value of our assets or liabilities and financial results. Six of these policies are critical
because they require management to make difficult, subjective and complex judgments about matters
that are inherently uncertain and because it is likely that materially different amounts would be
reported under different conditions or using different assumptions. These policies govern:



the allowance for credit losses;



purchased credit-impaired (PCI) loans;



the valuation of residential mortgage servicing rights (MSRs);



the fair valuation of financial instruments;



pension accounting; and



income taxes.

Management has reviewed and approved these critical accounting policies and has discussed these
policies with the Audit and Examination Committee of the Companys Board. These policies are
described in the Financial Review  Critical Accounting Policies section and Note 1 (Summary of
Significant Accounting Policies) to Financial Statements in our 2009 Form 10-K.

FAIR VALUATION OF FINANCIAL INSTRUMENTS

We use fair value measurements to record fair value adjustments to certain financial instruments
and to determine fair value disclosures. See our 2009 Form 10-K for the complete critical
accounting policy related to fair valuation of financial instruments.

For the securities available-for-sale portfolio, we typically use independent pricing services and
brokers to obtain fair value based upon quoted prices. We determine the most appropriate and
relevant pricing service for each security class and generally obtain one quoted price for each
security. For securities in our trading portfolio, we typically use prices developed internally by
our traders to measure the security at fair value. Internal traders base their prices upon their
knowledge of current market information for the particular security class being valued. Current
market information includes recent transaction prices for the same or similar securities, liquidity
conditions, relevant benchmark indices and other market data. For both trading and
available-for-sale securities, we validate prices using a variety of methods, including but not
limited to, comparison to pricing services, corroboration of pricing by reference to other
independent market data such as secondary broker quotes and relevant benchmark indices and, for
securities valued using external pricing services or brokers, review of pricing by Company
personnel familiar with market liquidity and other market-related conditions. We believe the
determination of fair value for our securities is consistent with the accounting guidance on fair
value measurements.

The table below presents the summary of the fair value of financial instruments recorded at fair
value on a recurring basis, and the amounts measured using significant Level 3 inputs (before
derivative netting adjustments). The fair value of the remaining assets and liabilities were
measured using valuation methodologies involving market-based or market-derived information,
collectively Level 1 and 2 measurements.

June 30, 2010

December 31, 2009

Total

Total

($ in billions)

balance

Level 3 (1)

balance

Level 3 (1)

Assets carried at fair value

$

260.4

47.2

277.4

52.0

As a percentage of total assets

21

%

4

22

4

Liabilities carried at fair value

$

21.8

8.2

22.8

7.9

As a percentage of total liabilities

2

%

1

2

1

(1)

Before derivative netting adjustments.

See Note 12 (Fair Values of Assets and Liabilities) to Financial Statements in this Report for a
complete discussion on our use of fair valuation of financial instruments, our related measurement
techniques and its impact to our financial statements.

The following accounting pronouncements have been issued by the Financial Accounting Standards
Board, but are not yet effective:



Accounting Standards Update (ASU or Update) 2010-20, Disclosures about the Credit Quality
of Financing Receivables and the Allowance for Credit Losses;



ASU 2010-18, Effect of a Loan Modification When the Loan is Part of a Pool That is
Accounted for as a Single Asset; and



ASU 2010-11, Scope Exception Related to Embedded Credit Derivatives.

ASU 2010-20 requires enhanced disclosures for the allowance for credit losses and financing
receivables, which include certain loans and long-term accounts receivable. Companies will be
required to disaggregate credit quality information, including receivables on nonaccrual status,
aging of past due receivables, and the roll forward of the allowance for credit losses, by
portfolio segment or class of financing receivable. Portfolio segment is the level at which an
entity evaluates credit risk and determines its allowance for credit losses, and class of financing
receivable is generally a lower level of portfolio segment. Companies must also provide more
granular information on the nature and extent of TDRs and their effect on the allowance for credit
losses. This guidance is effective for us in fourth quarter 2010 with prospective application. Our
adoption of the Update will not affect our consolidated financial statement results since it amends
only the disclosure requirements for financing receivables and the allowance for credit losses.

ASU 2010-18 provides guidance for modified PCI loans that are accounted for within a pool.
Under the new guidance, modified PCI loans should not be removed from a pool even if those loans
would otherwise be deemed troubled debt restructurings. The Update also clarifies that entities
should consider the impact of modifications on a pool of PCI loans when evaluating that pool for
impairment. These accounting changes are effective for us in third quarter 2010 with early adoption
permitted. Our adoption of the Update will not affect our consolidated financial statement results,
as the new guidance is consistent with our current accounting practice.

ASU 2010-11 provides guidance clarifying when entities should evaluate embedded credit
derivative features in financial instruments issued from structures such as collateralized debt
obligations (CDOs) and synthetic CDOs. The Update clarifies that bifurcation and separate
accounting is not required for embedded credit derivative features that are only related to the
transfer of credit risk that occurs when one financial instrument is subordinate to another.
Embedded derivatives related to other types of credit risk must be analyzed to determine the
appropriate accounting treatment. The guidance also allows companies to elect fair value option
upon adoption for any investment in a beneficial interest in securitized financial assets. By
making this election, companies would not be required to evaluate whether embedded credit
derivative features exist for those interests. This guidance is effective for us in third quarter
2010. Our adoption of this standard is not expected to have a material impact on our financial
statements.

This Report contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as
anticipates, intends, plans, seeks, believes, estimates, expects, projects,
outlook, forecast, will, may, could, should, can and similar references to future
periods. Examples of forward-looking statements in this Report include, but are not limited to,
statements we make about: (i) future results of the Company; (ii) future credit quality and
expectations regarding future loan losses in our loan portfolios and life-of-loan estimates,
including our belief that credit quality has turned the corner and quarterly provision expense and
quarterly total credit losses have peaked, and that the positive trend in credit quality is
expected to continue over the coming year; the level and loss content of nonperforming assets and
nonaccrual loans; the adequacy of the allowance for loan losses, including our current expectation
of future reductions in the allowance for loan losses; and the reduction or mitigation of risk in
our loan portfolios and the effects of loan modification programs; (iii) the merger integration of
the Company and Wachovia, including expense savings, merger costs and revenue synergies; (iv) the
expected outcome and impact of legal, regulatory and legislative developments; and (v) the
Companys plans, objectives and strategies.

Forward-looking statements are based on our current expectations and assumptions regarding our
business, the economy and other future conditions. Because forward-looking statements relate to the
future, they are subject to inherent uncertainties, risks and changes in circumstances that are
difficult to predict. Our actual results may differ materially from those contemplated by the
forward-looking statements. We caution you, therefore, against relying on any of these
forward-looking statements. They are neither statements of historical fact nor guarantees or
assurances of future performance. While there is no assurance that any list of risks and
uncertainties or risk factors is complete, important factors that could cause actual results to
differ materially from those in the forward-looking statements include the following, without
limitation:



current and future economic and market conditions, including the effects of further
declines in housing prices and high unemployment rates;



the terms of capital investments or other financial assistance provided by the U.S.
government;



our capital requirements and the ability to raise capital on favorable terms, including
regulatory capital standards as determined by applicable regulatory authorities;



financial services reform and other current, pending or future legislation or regulation
that could have a negative effect on our revenue and businesses, including the Dodd-Frank Act
and legislation and regulation relating to overdraft fees (and changes to our overdraft
practices as a result thereof), credit cards, and other bank services;



legislative proposals to allow mortgage cram-downs in bankruptcy or require other loan
modifications;



the extent of our success in our loan modification efforts, as well as the effects of
regulatory requirements or guidance regarding loan modifications or changes in such
requirements or guidance;



our ability to successfully integrate the Wachovia merger and realize the expected cost
savings and other benefits and the effects of any delays or disruptions in systems conversions
relating to the Wachovia integration;



our ability to realize the efficiency initiatives to lower expenses when and in the amount
expected;



recognition of OTTI on securities held in our available-for-sale portfolio;



the effect of changes in interest rates on our net interest margin and our mortgage
originations, mortgage servicing rights and mortgages held for sale;



hedging gains or losses;



disruptions in the capital markets and reduced investor demand for mortgage loans;

the loss of checking and saving account deposits to other investments such as the stock
market, and the resulting increase in our funding costs and impact on our net interest margin;



fiscal and monetary policies of the Federal Reserve Board; and



the other risk factors and uncertainties described under Risk Factors in our 2009 Form
10-K and First Quarter Form 10-Q, and under Risk Factors in this Report.

In addition to the above factors, we also caution that there is no assurance that our allowance for
credit losses will be adequate to cover future credit losses, especially if credit markets, housing
prices and unemployment do not continue to stabilize or improve. Increases in loan charge-offs or
in the allowance for credit losses and related provision expense could materially adversely affect
our financial results and condition.

Any forward-looking statement made by us in this Report speaks only as of the date on which it is
made. Factors or events that could cause our actual results to differ may emerge from time to time,
and it is not possible for us to predict all of them. We undertake no obligation to publicly update
any forward-looking statement, whether as a result of new information, future developments or
otherwise, except as may be required by law.

RISK FACTORS

An investment in the Company involves risk, including the possibility that the value of the
investment could fall substantially and that dividends or other distributions on the investment
could be reduced or eliminated. We discuss above under Forward-Looking Statements and elsewhere
in this Report, as well as in other documents we file with the SEC, risk factors that could
adversely affect our financial results and condition and the value of, and return on, an investment
in the Company. We refer you to the Financial Review section and Financial Statements (and related
Notes) in this Report for more information about credit, interest rate, market and litigation
risks, the Risk Factors and Regulation and Supervision sections in our 2009 Form 10-K, the
Risk Factors section in our First Quarter Form 10-Q, and the Forward-Looking Statements section
of this Report for a discussion of risk factors.

The following risk factor supplements the risk factors set forth in our 2009 Form 10-K and First
Quarter Form 10-Q and should be read in conjunction with the other risk factors described in those
reports and in this Report.

Enacted legislation and regulation, including the Dodd-Frank Wall Street Reform and Consumer
Protection Act, could require us to change certain of our business practices, reduce our revenue,
impose additional costs on us or otherwise adversely affect our business operations and/or
competitive position.

Economic, financial, market and political conditions during the past few years have led to new
legislation and regulation in the United States and in other jurisdictions outside of the United
States where we conduct business. These laws and regulations may affect the manner in which we do
business and the products and services that we provide, affect or restrict our ability to compete
in our current businesses or our ability to enter into or acquire new businesses, reduce or limit
our revenue in businesses or impose additional fees, assessments or taxes on us, intensify the
regulatory supervision of us and the financial services industry, and adversely affect our business
operations or have other negative consequences.

For example, in 2009 several legislative and regulatory initiatives were adopted that will have an
impact on our businesses and financial results, including FRB amendments to Regulation E, which,
among other things, affect the way we may charge overdraft fees beginning on July 1, 2010, and the
enactment of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the Card
Act), which, among other things, affects our ability to change interest rates and assess certain
fees on card accounts. We currently estimate that the Regulation E amendments, including our
implementation of certain policy changes to our overdraft practices, will reduce our 2010 fee
revenue by approximately $225 million (after-tax) in third quarter 2010 and $275 million
(after-tax) in fourth quarter 2010. We currently estimate that
implementation of the Card Act regulations will have a net impact of $30 million (after-tax) in third
quarter 2010. The actual impact of the Regulation E amendments and the
Card Act in 2010 and future periods could vary due to a variety of factors, including
changes in customer behavior, economic conditions and other potential
offsetting factors.

On July 21, 2010, the Dodd-Frank Act became law. The Dodd-Frank Act, among other things, (i)
establishes a new Financial Stability Oversight Council to monitor systemic risk posed by financial
firms and imposes additional and enhanced FRB regulations on certain large, interconnected bank
holding companies and systemically significant nonbanking firms intended to promote financial
stability; (ii) creates a liquidation framework for the resolution of covered financial companies,
the costs of which would be paid through assessments on surviving covered financial companies;
(iii) makes significant changes to the structure of bank and bank holding company regulation and
activities in a variety of areas, including prohibiting proprietary trading and private fund
investment activities, subject to certain exceptions; (iv) creates a new framework for the
regulation of over-the-counter derivatives and new regulations for the securitization market and
strengthens the regulatory oversight of securities and capital markets by the SEC; (v) establishes
the Bureau of Consumer Financial Protection within the FRB, which will have sweeping powers to
administer and enforce a new federal regulatory framework of consumer financial regulation and, to
a certain extent, may limit the existing preemption of state laws with respect to the application
of such laws to national banks; (vi) provides for increased regulation of residential mortgage
activities; (vii) revises the FDICs assessment base for deposit insurance by changing from an
assessment base defined by deposit liabilities to a risk-based system based on total assets; (viii)
authorizes the FRB to issue regulations regarding the amount of any interchange transaction fee
that an issuer may charge to ensure that it is reasonable and proportional to the cost incurred;
and (ix) includes several corporate governance and executive compensation provisions and
requirements, including mandating an advisory stockholder vote on executive compensation.

Although the Dodd-Frank Act became generally effective in July, many of its provisions have
extended implementation periods and delayed effective dates and will require extensive rulemaking
by regulatory authorities as well as require more than 60 studies to be conducted over the next one
to two years. Accordingly, in many respects the ultimate impact of the Dodd-Frank Act and its
effects on the U.S.

financial system and the Company will not be known for an extended period of time. Nevertheless,
the Dodd-Frank Act, including future rules implementing its provisions and the interpretation of
those rules, could result in a loss of revenue, require us to change certain of our business
practices, limit our ability to pursue certain business opportunities, increase our capital
requirements and impose additional assessments and costs on us, and otherwise adversely affect our
business operations and have other negative consequences, including a reduction of our credit
ratings.

Any factor described in this Report or in our 2009 Form 10-K or First Quarter Form 10-Q could by
itself, or together with other factors, adversely affect our financial results and condition. There
are factors not discussed above or elsewhere in this Report that could adversely affect our
financial results and condition.

As required by SEC rules, the Companys management evaluated the effectiveness, as of June 30,
2010, of the Companys disclosure controls and procedures. The Companys chief executive officer
and chief financial officer participated in the evaluation. Based on this evaluation, the Companys
chief executive officer and chief financial officer concluded that the Companys disclosure
controls and procedures were effective as of June 30, 2010.

INTERNAL CONTROL OVER FINANCIAL REPORTING

Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the
Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the
Companys principal executive and principal financial officers and effected by the Companys Board,
management and other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance
with U.S. generally accepted accounting principles (GAAP) and includes those policies and
procedures that:



pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of assets of the Company;



provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and that receipts and
expenditures of the Company are being made only in accordance with authorizations of
management and directors of the Company; and



provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Companys assets that could have a material effect on
the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate. No change occurred during
second quarter in 2010 that has materially affected, or is reasonably likely to materially affect,
the Companys internal control over financial reporting.

WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)

Quarter ended June 30

,

Six months ended June 30

,

(in millions, except per share amounts)

2010

2009

2010

2009

Interest income

Trading assets

$

266

206

533

472

Securities available for sale

2,385

2,887

4,800

5,596

Mortgages held for sale

405

545

792

960

Loans held for sale

30

50

64

117

Loans

10,277

10,532

20,315

21,297

Other interest income

109

81

193

172

Total interest income

13,472

14,301

26,697

28,614

Interest expense

Deposits

714

957

1,449

1,956

Short-term borrowings

21

55

39

178

Long-term debt

1,233

1,485

2,509

3,264

Other interest expense

55

40

104

76

Total interest expense

2,023

2,537

4,101

5,474

Net interest income

11,449

11,764

22,596

23,140

Provision for credit losses

3,989

5,086

9,319

9,644

Net interest income after provision for credit losses

7,460

6,678

13,277

13,496

Noninterest income

Service charges on deposit accounts

1,417

1,448

2,749

2,842

Trust and investment fees

2,743

2,413

5,412

4,628

Card fees

911

923

1,776

1,776

Other fees

982

963

1,923

1,864

Mortgage banking

2,011

3,046

4,481

5,550

Insurance

544

595

1,165

1,176

Net gains from trading activities

109

749

646

1,536

Net gains (losses) on debt securities available for sale (1)

30

(78

)

58

(197

)

Net gains (losses) from equity investments (2)

288

40

331

(117

)

Operating leases

329

168

514

298

Other

581

476

1,191

1,028

Total noninterest income

9,945

10,743

20,246

20,384

Noninterest expense

Salaries

3,564

3,438

6,878

6,824

Commission and incentive compensation

2,225

2,060

4,217

3,884

Employee benefits

1,063

1,227

2,385

2,511

Equipment

588

575

1,266

1,262

Net occupancy

742

783

1,538

1,579

Core deposit and other intangibles

553

646

1,102

1,293

FDIC and other deposit assessments

295

981

596

1,319

Other

3,716

2,987

6,881

5,843

Total noninterest expense

12,746

12,697

24,863

24,515

Income before income tax expense

4,659

4,724

8,660

9,365

Income tax expense

1,514

1,475

2,915

3,027

Net income before noncontrolling interests

3,145

3,249

5,745

6,338

Less: Net income from noncontrolling interests

83

77

136

121

Wells Fargo net income

$

3,062

3,172

5,609

6,217

Wells Fargo net income applicable to common stock

$

2,878

2,575

5,250

4,959

Per share information

Earnings per common share

$

0.55

0.58

1.01

1.14

Diluted earnings per common share

0.55

0.57

1.00

1.13

Dividends declared per common share

0.05

0.05

0.10

0.39

Average common shares outstanding

5,219.7

4,483.1

5,205.1

4,365.9

Diluted average common shares outstanding

5,260.8

4,501.6

5,243.0

4,375.1

(1)

Includes other-than-temporary impairment losses of $106 million and $308 million recognized in
earnings, consisting of $49 million and $972 million of total other-than-temporary impairment losses,
net of $(57) million and $664 million recognized in other comprehensive income, for the quarters ended
June 30, 2010 and 2009, respectively, and other-than-temporary impairment losses of $198 million and
$577 million recognized in earnings, consisting of $203 million and $1,575 million of total
other-than-temporary impairment losses, net of $5 million and $998 million recognized in other
comprehensive income, for the six months ended June 30, 2010 and 2009, respectively.

(2)

Includes other-than-temporary impairment losses of $62 million and $155 million for the quarters ended
June 30, 2010 and 2009, respectively, and $167 million and $402 million for the six months ended June
30, 2010 and 2009, respectively.

Our consolidated assets at June 30, 2010, include the following assets of certain variable interest entities (VIEs) that can
only be used to settle the liabilities of those VIEs: Cash and due from banks, $379 million; Trading assets, $93 million;
Securities available for sale, $2.6 billion; Net loans, $20.5 billion; Other assets, $2.4 billion, and Total assets, $26.0
billion.

(2)

Our consolidated liabilities at June 30, 2010, include the following VIE liabilities for which the VIE creditors do not have
recourse to Wells Fargo: Short-term borrowings, $346 million; Accrued expenses and other liabilities, $771 million; Long-term
debt, $10.3 billion; and Total liabilities, $11.4 billion.

See the Glossary of Acronyms at the end of this Report for terms used throughout the Financial
Statements and related Notes of this Form 10-Q.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Wells Fargo & Company is a nation-wide diversified, community-based financial services company. We
provide banking, insurance, investments, mortgage banking, investment banking, retail banking,
brokerage, and consumer finance through banking stores, the internet and other distribution
channels to consumers, businesses and institutions in all 50 states, the District of Columbia, and
in other countries. When we refer to Wells Fargo, the Company, we, our or us in this Form
10-Q, we mean Wells Fargo & Company and Subsidiaries (consolidated). Wells Fargo & Company (the
Parent) is a financial holding company and a bank holding company. We also hold a majority interest
in a real estate investment trust, which has publicly traded preferred stock outstanding.

Our accounting and reporting policies conform with U.S. generally accepted accounting principles
(GAAP) and practices in the financial services industry. To prepare the financial statements in
conformity with GAAP, management must make estimates based on assumptions about future economic and
market conditions (for example, unemployment, market liquidity, real estate prices, etc.) that
affect the reported amounts of assets and liabilities at the date of the financial statements and
income and expenses during the reporting period and the related disclosures. Although our estimates
contemplate current conditions and how we expect them to change in the future, it is reasonably
possible that in 2010 actual conditions could be worse than anticipated in those estimates, which
could materially affect our results of operations and financial condition. Management has made
significant estimates in several areas, including the evaluation of other-than-temporary impairment
(OTTI) on investment securities (Note 4), allowance for credit losses and purchased credit-impaired
(PCI) loans (Note 5), valuing residential mortgage servicing rights (MSRs) (Notes 7 and 8) and
financial instruments (Note 12), pension accounting (Note 14) and income taxes. Actual results
could differ from those estimates. Among other effects, such changes could result in future
impairments of investment securities, increases to the allowance for loan losses, as well as
increased future pension expense.

The information furnished in these unaudited interim statements reflects all adjustments that are,
in the opinion of management, necessary for a fair statement of the results for the periods
presented. These adjustments are of a normal recurring nature, unless otherwise disclosed in this
Form 10-Q. The results of operations in the interim statements do not necessarily indicate the
results that may be expected for the full year. The interim financial information should be read in
conjunction with our Annual Report on Form 10-K for the year ended December 31, 2009 (2009 Form
10-K). Certain amounts in the financial statements for prior years have been revised to conform
with current financial statement presentation.

Information about these accounting updates is further described in more detail below.

ASU 2010-6 amends the disclosure requirements for fair value measurements. Companies are
now required to disclose significant transfers in and out of Levels 1 and 2 of the fair value
hierarchy, whereas the previous rules only required the disclosure of transfers in and out of Level
3. Additionally, in the rollforward of Level 3 activity, companies must present information on
purchases, sales, issuances, and settlements on a gross basis rather than on a net basis. The
Update also clarifies that fair value measurement disclosures should be presented for each class of
assets and liabilities. A class is typically a subset of a line item in the statement of financial
position. Companies should also provide information about the valuation techniques and inputs used
to measure fair value for both recurring and nonrecurring instruments classified as either Level 2
or Level 3. We adopted this guidance in first quarter 2010 with prospective application, except for
the new requirement related to the Level 3 rollforward. Gross presentation in the Level 3
rollforward is effective for us in first quarter 2011 with prospective application. Our adoption of
the Update did not affect our consolidated financial statement results since it amends only the
disclosure requirements for fair value measurements.

ASU 2009-16 (FAS 166) modifies certain guidance contained in ASC 860, Transfers and
Servicing. This pronouncement eliminates the concept of qualifying special purpose entities (QSPEs)
and provides additional criteria transferors must use to evaluate transfers of financial assets.
The Update also requires that any assets or liabilities retained from a transfer accounted for as a
sale must be initially recognized at fair value. We adopted this guidance in first quarter 2010
with prospective application for transfers that occurred on and after January 1, 2010.

ASU 2009-17 (FAS 167) amends several key consolidation provisions related to variable
interest entities (VIEs), which are included in ASC 810, Consolidation. The scope of the new
guidance includes entities that were previously designated as QSPEs. The Update also changes the
approach companies must use to identify VIEs for which they are deemed to be the primary
beneficiary and are required to consolidate. Under the new guidance, a VIEs primary beneficiary is
the entity that has the power to direct the VIEs significant activities, and has an obligation to
absorb losses or the right to receive benefits that could be potentially significant to the VIE.
The Update also requires companies to continually reassess whether they are the primary beneficiary
of a VIE, whereas the previous rules only required reconsideration upon the occurrence of certain
triggering events. We adopted this guidance in first quarter 2010, which resulted in the
consolidation of $18.6 billion of incremental assets onto our consolidated balance sheet and a $183
million increase to beginning retained earnings as a cumulative effect adjustment.

We also elected the fair value option for those newly consolidated VIEs for which our interests,
prior to January 1, 2010, were predominantly carried at fair value with changes in fair value
recorded to earnings. Accordingly, the fair value option was elected to effectively continue fair
value accounting through earnings for those interests. Conversely, we did not elect the fair value
option for those newly consolidated VIEs that did not share these characteristics. At January 1,
2010, the fair value of loans and long-term debt for which we elected the fair value option was
$1.0 billion and $1.0 billion, respectively. The incremental impact of electing the fair value
option (compared to not electing) on the cumulative effect adjustment to retained earnings was an
increase of $15 million. See Notes 7 and 12 in this Report for additional information.

ASU 2010-10 amends consolidation accounting guidance to defer indefinitely the application
of ASU 2009-17 to certain investment funds. The amendment was effective for us in first quarter
2010. As a result, we did not consolidate any investment funds upon adoption of ASU 2009-17.

Supplemental Cash Flow Information

Noncash activities are presented below, including information on transfers affecting mortgages held
for sale (MHFS), loans held for sale (LHFS), and MSRs.

Six months ended June 30

,

(in millions)

2010

2009

Transfers from trading assets to securities available for sale

$



845

Transfers from loans to securities available for sale

3,468



Transfers from MHFS to trading assets



663

Transfers from MHFS to MSRs

2,025

3,550

Transfers from MHFS to foreclosed assets

102

87

Transfers from (to) loans to (from) MHFS

99

45

Transfers from (to) loans to (from) LHFS

(77

)

16

Transfers from loans to foreclosed assets

5,481

3,307

Adoption of consolidation accounting guidance:

Trading assets

155



Securities available for sale

(7,590

)



Loans

25,657



Other assets

193



Short-term borrowings

5,127



Long-term debt

13,134



Accrued expenses and other liabilities

(32

)



Decrease in noncontrolling interests due to deconsolidation of subsidiaries

240



Transfer from noncontrolling interests to long-term debt

345



Subsequent Events

We have evaluated the effects of subsequent events that have occurred subsequent to period end June
30, 2010. There have been no material events that would require recognition in our second quarter
2010 consolidated financial statements or disclosure in the Notes to the financial statements.

We regularly explore opportunities to acquire financial services companies and businesses.
Generally, we do not make a public announcement about an acquisition opportunity until a definitive
agreement has been signed. For information on additional consideration related to acquisitions,
which is considered to be a guarantee, see Note 10 in this Report.

In the first half of 2010, we completed two acquisitions with combined total assets of $431 million
consisting of a factoring business and an insurance brokerage business. At June 30, 2010, we had
one small insurance brokerage business acquisition pending and expect to complete this transaction
during third quarter 2010.

On December 31, 2008, Wells Fargo acquired Wachovia Corporation (Wachovia). The purchase accounting
for the Wachovia acquisition was finalized as of December 31, 2009. Costs associated with
involuntary employee termination, contract terminations and closing duplicate facilities were
recorded throughout 2009 and allocated to the purchase price. The following table summarizes the
first half of 2010 usage of the exit reserves associated with the Wachovia acquisition.

The following table provides the detail of federal funds sold, securities purchased under resale
agreements and other short-term investments.

June 30

,

Dec. 31

,

(in millions)

2010

2009

Federal funds sold and securities
purchased under resale agreements

$

16,302

8,042

Interest-earning deposits

55,550

31,668

Other short-term investments

2,046

1,175

Total

$

73,898

40,885

We pledge certain financial instruments that we own to collateralize repurchase agreements and
other securities financings. The types of collateral we pledge include securities issued by federal
agencies, government-sponsored entities (GSEs), and domestic and foreign companies. We pledged
$18.3 billion at June 30, 2010, and $14.8 billion at December 31, 2009, under agreements that
permit the secured parties
to sell or repledge the collateral. Pledged collateral where the secured party cannot sell or
repledge was $782 million at June 30, 2010, and $434 million at December 31, 2009.

We receive collateral from other entities under resale agreements and securities borrowings. We
received $136.3 billion at June 30, 2010, and $31.4 billion at December 31, 2009, for which we have
the right to sell or repledge the collateral. These amounts include securities we have sold or
repledged to others with a fair value of $134.7 billion at June 30, 2010, and $29.7 billion at
December 31, 2009.

The following table provides the cost and fair value for the major categories of securities
available for sale carried at fair value. The net unrealized gains (losses) are reported on an
after-tax basis as a component of cumulative other comprehensive income (OCI). There were no
securities classified as held to maturity as of the periods presented.

Gross

Gross

unrealized

unrealized

Fair

(in millions)

Cost

gains

losses

value

June 30, 2010

Securities of U.S. Treasury and federal agencies

$

1,621

64



1,685

Securities of U.S. states and political subdivisions

16,205

764

(545

)

16,424

Mortgage-backed securities:

Federal agencies

66,915

4,489

(9

)

71,395

Residential

19,425

2,501

(780

)

21,146

Commercial

12,513

1,293

(1,276

)

12,530

Total mortgage-backed securities

98,853

8,283

(2,065

)

105,071

Corporate debt securities

8,848

1,159

(64

)

9,943

Collateralized debt obligations

4,020

340

(329

)

4,031

Other (1)

15,219

754

(363

)

15,610

Total debt securities

144,766

11,364

(3,366

)

152,764

Marketable equity securities:

Perpetual preferred securities

3,999

237

(150

)

4,086

Other marketable equity securities

572

509

(4

)

1,077

Total marketable equity securities

4,571

746

(154

)

5,163

Total

$

149,337

12,110

(3,520

)

157,927

December 31, 2009

Securities of U.S. Treasury and federal agencies

$

2,256

38

(14

)

2,280

Securities of U.S. states and political subdivisions

13,212

683

(365

)

13,530

Mortgage-backed securities:

Federal agencies

79,542

3,285

(9

)

82,818

Residential

28,153

2,480

(2,043

)

28,590

Commercial

12,221

602

(1,862

)

10,961

Total mortgage-backed securities

119,916

6,367

(3,914

)

122,369

Corporate debt securities

8,245

1,167

(77

)

9,335

Collateralized debt obligations

3,660

432

(367

)

3,725

Other (1)

15,025

1,099

(245

)

15,879

Total debt securities

162,314

9,786

(4,982

)

167,118

Marketable equity securities:

Perpetual preferred securities

3,677

263

(65

)

3,875

Other marketable equity securities

1,072

654

(9

)

1,717

Total marketable equity securities

4,749

917

(74

)

5,592

Total

$

167,063

10,703

(5,056

)

172,710

(1)

Included in the Other category are asset-backed securities collateralized by auto leases or loans and cash reserves with a cost
basis and fair value of $6.7 billion and $6.9 billion, respectively, at June 30, 2010, and $8.2 billion and $8.5 billion,
respectively, at December 31, 2009. Also included in the Other category are asset-backed securities collateralized by home equity
loans with a cost basis and fair value of $1.0 billion and $1.2 billion, respectively, at June 30, 2010, and $2.3 billion and $2.5
billion, respectively, at December 31, 2009. The remaining balances primarily include asset-backed securities collateralized by
credit cards and student loans.

As part of our liquidity management strategy, we pledge securities to secure borrowings from the
Federal Home Loan Bank (FHLB) and the Federal Reserve Bank. We also pledge securities to secure
trust and public deposits and for other purposes as required or permitted by law. Securities
pledged where the secured party does not have the right to sell or repledge totaled $91.7 billion
at June 30, 2010, and $98.9 billion at December 31, 2009. We did not pledge any securities where
the secured party has the right to sell or repledge the collateral as of the same periods,
respectively.

The following table shows the gross unrealized losses and fair value of securities in the
securities available-for-sale portfolio by length of time that individual securities in each
category had been in a continuous loss position. Debt securities on which we have taken
credit-related OTTI write-downs are categorized as being less than 12 months or 12 months or
more in a continuous loss position based on the point in time that the fair value declined to
below the cost basis and not the period of time since the credit-related OTTI write-down.

Less than 12 months

12 months or more

Total

Gross

Gross

Gross

unrealized

Fair

unrealized

Fair

unrealized

Fair

(in millions)

losses

value

losses

value

losses

value

June 30, 2010

Securities of U.S. states and political subdivisions

$

(93

)

2,653

(452

)

2,715

(545

)

5,368

Mortgage-backed securities:

Federal agencies

(9

)

1,010





(9

)

1,010

Residential

(19

)

788

(761

)

5,316

(780

)

6,104

Commercial

(10

)

366

(1,266

)

5,589

(1,276

)

5,955

Total mortgage-backed securities

(38

)

2,164

(2,027

)

10,905

(2,065

)

13,069

Corporate debt securities

(18

)

731

(46

)

290

(64

)

1,021

Collateralized debt obligations

(18

)

687

(311

)

519

(329

)

1,206

Other

(70

)

1,432

(293

)

812

(363

)

2,244

Total debt securities

(237

)

7,667

(3,129

)

15,241

(3,366

)

22,908

Marketable equity securities:

Perpetual preferred securities

(139

)

1,349

(11

)

74

(150

)

1,423

Other marketable equity securities

(4

)

65





(4

)

65

Total marketable equity securities

(143

)

1,414

(11

)

74

(154

)

1,488

Total

$

(380

)

9,081

(3,140

)

15,315

(3,520

)

24,396

December 31, 2009

Securities of U.S. Treasury and federal agencies

$

(14

)

530





(14

)

530

Securities of U.S. states and
political subdivisions

(55

)

1,120

(310

)

2,826

(365

)

3,946

Mortgage-backed securities:

Federal agencies

(9

)

767





(9

)

767

Residential

(243

)

2,991

(1,800

)

9,697

(2,043

)

12,688

Commercial

(37

)

816

(1,825

)

6,370

(1,862

)

7,186

Total mortgage-backed securities

(289

)

4,574

(3,625

)

16,067

(3,914

)

20,641

Corporate debt securities

(7

)

281

(70

)

442

(77

)

723

Collateralized debt obligations

(55

)

398

(312

)

512

(367

)

910

Other

(73

)

746

(172

)

286

(245

)

1,032

Total debt securities

(493

)

7,649

(4,489

)

20,133

(4,982

)

27,782

Marketable equity securities:

Perpetual preferred securities

(1

)

93

(64

)

527

(65

)

620

Other marketable equity securities

(9

)

175





(9

)

175

Total marketable equity securities

(10

)

268

(64

)

527

(74

)

795

Total

$

(503

)

7,917

(4,553

)

20,660

(5,056

)

28,577

We do not have the intent to sell any securities included in the table above. For debt securities
included in the table above, we have concluded it is more likely than not that we will not be
required to sell prior to recovery of the amortized cost basis. We have assessed each security for
credit impairment. For debt securities, we evaluate, where necessary, whether credit impairment
exists by comparing the present value of the expected cash flows to the securities amortized cost
basis. For equity securities, we consider

numerous factors in determining whether impairment exists, including our intent and ability to hold
the securities for a period of time sufficient to recover the cost basis of the securities.

For complete descriptions of the factors we consider when analyzing debt securities for impairment,
see Note 5 of the 2009 10-K. There have been no material changes to our methodologies for assessing
impairment in second quarter 2010.

Securities of U.S. Treasury and federal agencies
The unrealized losses associated with U.S. Treasury and federal agency securities do not have any
credit losses due to the guarantees provided by the United States government.

Securities of U.S. states and political subdivisions
The unrealized losses associated with securities of U.S. states and political subdivisions are
primarily driven by changes in interest rates and not due to the credit quality of the securities.
Substantially all of these investments are investment grade. The securities were generally
underwritten in accordance with our own investment standards prior to the decision to purchase,
without relying on a bond insurers guarantee in making the investment decision. These investments
will continue to be monitored as part of our ongoing impairment analysis, but are expected to
perform, even if the rating agencies reduce the credit rating of the bond insurers. As a result, we
expect to recover the entire amortized cost basis of these securities.

Federal Agency Mortgage-Backed Securities (MBS)
The unrealized losses associated with federal agency MBS are primarily driven by changes in
interest rates and not due to credit losses. These securities are issued by U.S. government or GSEs
and do not have any credit losses given the explicit or implicit government guarantee.

Residential Mortgage-Backed Securities
The unrealized losses associated with private residential MBS are primarily driven by higher
projected collateral losses, wider credit spreads and changes in interest rates. We assess for
credit impairment using a cash flow model. The key assumptions include default rates, severities
and prepayment rates. We estimate losses to a security by forecasting the underlying mortgage loans
in each transaction. The forecasted loan performance is used to project cash flows to the various
tranches in the structure. Cash flow forecasts also considered, as applicable, independent industry
analyst reports and forecasts, sector credit ratings, and other independent market data. Based upon
our assessment of the expected credit losses of the security given the performance of the
underlying collateral compared with our credit enhancement, we expect to recover the entire
amortized cost basis of these securities.

Commercial Mortgage-Backed Securities
The unrealized losses associated with commercial MBS are primarily driven by higher projected
collateral losses and wider credit spreads. These investments are predominantly investment grade.
We assess for credit impairment using a cash flow model. The key assumptions include default rates
and severities. We estimate losses to a security by forecasting the underlying loans in each
transaction. The forecasted loan performance is used to project cash flows to the various tranches
in the structure. Cash flow forecasts are also considered, as applicable, and independent industry
analyst reports and forecasts, sector credit ratings, and other independent market data. Based upon
our assessment of the expected credit losses of the security given the performance of the
underlying collateral compared with our credit enhancement, we expect to recover the entire
amortized cost basis of these securities.

Corporate Debt Securities
The unrealized losses associated with corporate debt securities are primarily related to securities
backed by commercial loans and individual issuer companies. For securities with commercial loans as
the underlying collateral, we have evaluated the expected credit losses in the security and
concluded that we have sufficient credit enhancement when compared with our estimate of credit
losses for the individual security. For individual issuers, we evaluate the financial performance
of the issuer on a quarterly basis to determine that the issuer can make all contractual principal
and interest payments. Based upon this assessment, we expect to recover the entire cost basis of
these securities.

Collateralized Debt Obligations (CDOs)
The unrealized losses associated with CDOs relate to securities primarily backed by commercial,
residential or other consumer collateral. The losses are primarily driven by higher projected
collateral losses and wider credit spreads. We assess for credit impairment using a cash flow
model. The key assumptions include default rates, severities and prepayment rates. Based upon our
assessment of the expected credit losses of the security given the performance of the underlying
collateral compared with our credit enhancement, we expect to recover the entire amortized cost
basis of these securities.

Other Debt Securities
The unrealized losses associated with other debt securities primarily relate to other asset-backed
securities, which are primarily backed by auto, home equity and student loans. The losses are
primarily driven by higher projected collateral losses, wider credit spreads and changes in
interest rates. We assess for credit impairment using a cash flow model. The key assumptions
include default rates, severities and prepayment rates. Based upon our assessment of the expected
credit losses of the security given the performance of the underlying collateral compared with our
credit enhancement, we expect to recover the entire amortized cost basis of these securities.

Marketable Equity Securities
Our marketable equity securities include investments in perpetual preferred securities, which
provide very attractive tax-equivalent yields. We evaluated these hybrid financial instruments with
investment-grade ratings for impairment using an evaluation methodology similar to that used for
debt securities. Perpetual preferred securities were not other-than-temporarily impaired at June
30, 2010, if there was no evidence of credit deterioration or investment rating downgrades of any
issuers to below investment grade, and we expected to continue to receive full contractual
payments. We will continue to evaluate the prospects for these securities for recovery in their
market value in accordance with our policy for estimating OTTI. We have recorded impairment
write-downs on perpetual preferred securities where there was evidence of credit deterioration.

The fair values of our investment securities could decline in the future if the underlying
performance of the collateral for the residential and commercial MBS or other securities
deteriorate and our credit enhancement levels do not provide sufficient protection to our
contractual principal and interest. As a result, there is a risk that significant OTTI may occur in
the future given the current economic environment.

The following table shows the gross unrealized losses and fair value of debt and perpetual
preferred securities available for sale by those rated investment grade and those rated less than
investment grade, according to their lowest credit rating by Standard & Poors Rating Services
(S&P) or Moodys Investors Service (Moodys). Credit ratings express opinions about the credit
quality of a security. Securities rated investment grade, that is those rated BBB- or higher by S&P
or Baa3 or higher by Moodys, are generally considered by the rating agencies and market
participants to be low credit risk. Conversely, securities rated below investment grade, labeled as
speculative grade by the rating agencies, are considered to be distinctively higher credit risk
than investment grade securities. We have also included securities not rated by S&P or Moodys in
the table below based on the internal credit grade of the securities (used for credit risk
management purposes) equivalent to the credit rating assigned by major credit agencies. The
unrealized losses and fair value of unrated securities categorized as investment grade were $55
million and $1.1 billion, respectively, at June 30, 2010. There were no unrated securities in a
loss position categorized as investment grade as of December 31, 2009. If an internal credit grade
was not assigned, we categorized the security as non-investment grade.

The following table shows the remaining contractual principal maturities and contractual yields of
debt securities available for sale. The remaining contractual principal maturities for MBS were
determined assuming no prepayments. Remaining expected maturities will differ from contractual
maturities because borrowers may have the right to prepay obligations before the underlying
mortgages mature.